The aftermath — What’s next for Kucoin?
Since my last post about Kucoin a lot has happened. When I wrote that article, I predicted Kucoin’s KCS to compete toe-to-toe with Binance’s BNB, and that Kucoin would reach $1bn in daily volume 3–6 months later. Fast forward only three weeks and KCS briefly overtook BNB in terms of market cap, daily volume on Kucoin reached a high of around $350M, over 1M users signed up for Kucoin, and Kucoin became a Top 16–20 exchange. I did predict this would happen. However, my timeframe was 3 months, not 3 weeks!
Since my analysis Kucoin has shot up in price from $0.80 to $20.6 and is now (IMO) sitting at a fairly cheap price of around $14. I will explain below why I still think that is cheap despite its 2,700% run.
Looking at Kucoin’s recent success and momentum, a $1bn daily volume does not seem far fetched. I think Kucoin has more than proven that it is a serious competitor to Binance. The other day I spotted the volume on Binance going over $9bn. It might even have touched the $10bn mark, and cryptocurrencies are still a small niche that very few people trade on a global basis. I think Binance and Kucoin could reach volumes between $10bn — $50bn before 2019 as interest for cryptocurrency continues to grow exponentially. Look at my sheet if you want to know what $10bn in daily volume means for KCS holders:
You will also notice that volume on Kucoin has dropped to around $100M-$150M. This is because their user base grew extremely fast in a very short amount of time. Their servers have been upgraded numerous times, and they continue to do so. Consequentially, volume has dropped due to regular downtimes. This is a good problem to have. When Kucoin becomes stable again, and the servers can handle the extreme traffic, volume on Kucoin will shoot past $1bn very fast. I can almost guarantee this.
$100 KCS? Comparing Kucoin with NASDAQ stocks
Now let’s get to the juicy part. Why do I think Kucoin is still cheap in spite of it having had a 2,700% run? I use simplified calculations to determine the potential of KCS. Obviously, since the calculations, in part, are based on speculation, they are not 100% the truth. However they can give us a very good indicator of how valuable KCS is, and where this valuation is heading in the future.
What I use to calculate the future price of Kucoin are two things:
1. My prediction of $1–10bn daily volume on the exchange.
2. The average P/E ratio of NASDAQ, one of the biggest stock brokers in the world.
If you are not familiar with the P/E ratio indicator, it indicates the ratio between a company’s price/market cap (P) and its earnings (E). According to NASDAQ themselves, their own P/E ratio is between 15–22. This means that their market cap is 15–22 times larger than their annual earnings.
Since KCS tokens act as IOU’s for 50% of Kucoins earnings, we can view them as half of Kucoin’s stocks (they are called Kucoin Shares after all).
If Kucoin has a conservative $1bn daily volume, their earnings (E) becomes:
E = 365*0.5*$1,000,000,000*(0.2/100) = $365M
If we use NASDAQ’s conservative P/E ratio of 15, the market cap (P) of KCS become:
P = E*(P/E) = $365*15 = $5.475bn
This is 5x KCS’ current price, putting its price tag at around $70. If/when Kucoin decreases the dividends from 50% to 15%, the price should be only 1/3 of that, meaning “only” a 1.5x increase. This is how conservative it gets. But remember that:
- My target is $10bn volume, not $1bn. You can then 10x those 1.5x, putting it at 15x instead.
- If you use NASDAQ’s current P/E ratio of 22 instead of their projected 15, you can multiply those 15x with another 1.5x, and now we are looking at 22.5x.
- If you think KCS is representative of Kucoin as a whole, and not only the 15% dividends it will give, you are looking at multiplying by another 6.5x, meaning the very optimistic target becomes 146x of todays price, or a target of $2000. It is debatable if you can/should do this, but it is up to you and how conservative you are with your investments. Personally I do not recommend setting this target, but it is a fun thought.
Since my target is $10bn in daily volume and due to the speculative nature of cryptocurrency markets, resulting in P/E ratios to be significantly greater for cryptocurrency based companies compared to traditional companies, my own target for KCS is 22.5x or $300+. Depending on how conservative you are yourself when it comes to speculation, your target might be anywhere between 1.5x and 146x ($21– $2000).
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