Seeking Alpha

Stocks That Will Benefit From A Bitcoin Boom

by: StockBaller

There are a number of bitcoin-related stocks that are not receiving major attention at this time.

These stocks, while having shaky fundamentals, may represent long opportunities in the event that we see a second big bitcoin run.

Major caution must still be exercised.

After a long bear market in the Bitcoin (BTC-USD) market lasting well over a year, optimism is back again as bitcoin has surged in the past week, breaking an important support level around $6,000. In this article I will not discuss where bitcoin may be headed, but rather stocks anyone can buy that are directly or indirectly related to cryptocurrency, and will likely benefit hugely if we enter a second bitcoin boom. While these stocks tend to have terrible fundamentals and carry major risk – and I am certainly not recommending longing any without caution – they have some advantage in that far fewer traders pay attention to them, and may go largely unnoticed until a second bitcoin boom is well under way.

What follows is a list of stocks that are (or at least claim to be) involved in bitcoin mining, selling bitcoin hardware, or are engaged in other activities related to the cryptocurrency or blockchain market.

MGT Capital Investments (OTCQB:MGTI)

MGTI benefited hugely from the first bitcoin boom, reaching a high of around $5 before sinking all the way under $0.1, where it currently trades (though it has had some activity over the last week with an increased interest in bitcoin). MGTI's primary business has been in mining bitcoin, with machines in Washington State and Sweden. That has proven to be an extremely tough business over the past year – as the bitcoin market struggled, the expenses in electricity that came with the computation required to mine new bitcoin outweighed the value of the bitcoin being mined, resulting in a losing enterprise. Now, however, with a small spike in the price of bitcoin, MGTI has announced that it is resuming its mining operations.

MGTI has a rather shaky history coupled with a questionable balance sheet. In its most recent annual report, it shows cash and cash equivalents of only $96,000 as of December 31, 2018, with revenue of $2.03 million for last year and an operating expense of $25.9 million, leading to a net loss on the year of around $23.8 million. That is in addition to the numerous legal issues and class action suits the company has faced regarding mismanagement and violations of securities laws. Last year, the SEC had alleged that the then-CEO of MGTI (together with the leader of Riot Blockchain listed below) had participated in a pump-and-dump scheme, and there is indeed strong evidence that investment funds were mismanaged given that MGTI now has less than $1 million in total assets.

Riot Blockchain (RIOT)

Listed on the Nasdaq, RIOT is involved in the bitcoin mining industry like MGTI, and also advertises itself as “focused on building , supporting and operating Blockchain technologies.” Some of RIOT's activities outside of bitcoin mining include an ownership in Coinsquare (a cryptocurrency exchange) and a majority interest in TESS (a blockchain development company). However, the vast majority, if not all, of RIOT's revenue is still obtained through bitcoin mining.

In RIOT's recently released Q1 2019 results, it announced it had mined 330 bitcoins, 336 bitcoin Cash and 1,423 Litecoins, amounting to roughly $1.4 million in revenue. That is significantly higher quarterly revenue than MGTI, and being listed on the Nasdaq, RIOT naturally has far greater assets (over $15 million). But the dangers remain: not only does RIOT have a suspicious past, including though seemingly participating in pump-and-dump schemes (linked above), but it is also taking major net losses (around $13.7 million last quarter) compared to its cash and cash equivalents on hand (only $1 million) or even compared to its total assets.

Bitcoin Services (OTCPK:BTSC)

BTSC claims to engage in bitcoin mining, and perhaps also blockchain software development according to its website. Like other bitcoin-related stocks, it enjoyed a huge run-up in the bitcoin bull run of December 2017 before crashing and remaining placid since. Strangely, despite being listed on the OTCBB for several years, I cannot find any real information about this company, and it does not appear to have released any news or press releases (at least in the recent past). Its website also only gives very vague, general information. Its annual report at least shows revenue of $332,490 for the year of 2018, with a net loss of $5,257,085 and cash of only $543,304 (similarly dubious to most other bitcoin-related stocks), but does not go into any real detail on its business operations.

First Bitcoin Capital (OTC:BITCF)

BITCF is involved in several small bitcoin-related projects, though none appears to be very significant, being either simple news or price websites, or products that do not appear to have gained any real traction:

  • CoinQX is down for maintenance

  • has a plethora of comments accusing it of being a scam on its Facebook page, as well as this review and this thread, with not a single person vouching for its legitimacy

  • is nothing more than an aggregation website with little or no traffic that links to news stories from other websites

In terms of financials, the investors section of BITCF's website does not show any recent financial statements (only up to 2017). Given the above, whatever the financial situation of BITCF is right now, it's unlikely to be healthy. It's also worth noting that BITCF had run into trouble before with the SEC due to concerns over the accuracy and adequacy of public information about the company.

Hut 8 Mining (OTCQX:HUTMF)

HUTMF is a Canadian company claiming to be the largest publicly traded cryptocurrency miner in the world, with over 9,000 bitcoins mined. While receiving less coverage than companies like MGTI and RIOT, HUTMF is in my view the most solid bitcoin mining company, and its financials are far greater than other stocks in this space. A look at its financial statement for the year ended 2018 (note this is in Canadian dollars) shows revenue of $49,439,100 in digital assets mined, with net losses of $87 million (mainly due to large impairments in bitcoin mining equipment and the price of bitcoin). It's also worth noting that unlike the other stocks listed here, HUTMF does not have any dubious history relating to pump-and-dump schemes or issues with the SEC – by all appearances this is a company legitimately set up with the aim of mining bitcoin, rather than selling stock.

As an enormous miner of bitcoin, HUTMF has an exclusive partnership with Bitfury (a provider of bitcoin mining rigs) and uses the Bitfury BlackBox AC for most of its mining operations.

Final Thoughts

As should be obvious by now, the aforementioned stocks carry gigantic risks, and are typically dubious at best fundamentally. However, that does not mean there isn't potential in longing them (at least for a short-term trade) in the event that the price of bitcoin goes crazy again, as they have a history of spiking after bitcoin as traders look for alternative bitcoin-related investments. Just remember to treat them for what they are – speculative at best – and have a set risk in mind.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.