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In this article, we will analyze a nanocap company, CurrencyWorks (CWRK), and its unique positioning in the blockchain and cryptocurrency market as a pick-and-shovel play on the space. With a strong board and team of experts in the space, CurrencyWorks is a risky but potentially highly rewarding investment in the long term, and at current levels may offer significant near-term upside.
Introduction
Crypto has become a highlight of investing over the last few years as Bitcoin’s (BTC-USD) massive run over the last few years has banked some investors hundreds of times their initial investment. Now, virtually everyone in the entire country has heard of bitcoin, but fewer understand why it is popular or why it is important.
As many are aware, Bitcoin’s popularity is due to its utility in being an alternative to fiat currency as there is no government involvement, and limited oversight, although that may change. In the past, investors put their capital into gold or gold companies as a hedge against inflation, so now investors are seeing crypto, especially more popular cryptocurrencies, such as Bitcoin and Ethereum (ETH-USD), as a complementary investment to traditional safe havens such as gold or copper. Additionally, the prices have had wild fluctuations in recent years and have attracted the attention of traders, giving rise to crypto trading platforms such as Coinbase (COIN), Voyager Digital (VYGVF), and eToro, and in response, traditional and new-age brokerages like TD Ameritrade (SCHW) and Robinhood (HOOD) have quickly scrambled to add crypto or crypto futures to their wheelhouses.
Cryptocurrencies have been “all the rage,” and as such, coins and currencies with questionable purposes and value have been created, where some somehow gain popularity (like Dogecoin (DOGE-USD)) but others do not but, what many people aren’t aware of is that the underlying technology of cryptocurrency can be used for more straightforward investment purposes and support actual business-based investment as opposed to a commodity-like trading vehicle.
But arguably the greater opportunity lies with the blockchain, which is the underlying technology that Bitcoin and other cryptos rely on. Blockchain drives cryptocurrencies and can also be used for many other applications such as secure sharing of medical data (electronic health records), non-fungible tokens (NFTs), music royalties tracking, cross-border payments, IoT operating systems, personal identity security, anti-money laundering tracking systems, supply chain and logistics monitoring, voting systems, advertising insights, original content creating and verification, cryptocurrencies, and real estate processing platforms.
What do all these things have in common? Security and verification processes. That is the bread and butter of blockchain.
What is Blockchain and How Does it Work?
According to EuroMoney,
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralized database managed by multiple participants is known as Distributed Ledger Technology (DLT).
Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash.
Source: EuroMoney
We already use ledgers to manage and record our money. A ledger records economic activity and financial relationships, kind of like how people write transactions in their checkbook. So in the case of Bitcoin, the verifiable, secure, distributed ledger stores transactions, whereas Ethereum stores balances. Either way, it's recordkeeping of economic activity. In fact, fiat currencies like the U.S. dollar use a ledger system (integrated into the fractional banking system) to keep track of things. So the digital distributed ledger like Bitcoin that is blockchain/crypto is in some essence just a fancy, improved, secure, verifiable, and decentralized electronic method of what is already being done.
With fiat currency, depending on where you live, there’s one standard. With cryptocurrencies, there are over 6,000 as of August 2021. And while well-established cryptocurrencies are being more and more accepted online and in business as valid alternatives to fiat currency (i.e. the U.S. dollar), investors continue to turn to cryptocurrency to make capital gains as compared to the U.S. dollar, rather than just diversifying liquid capital into two different currencies. Thus, many investors are scrambling to cryptocurrency to try to find the next Dogecoin. But Dogecoin was a joke until Elon Musk and others used their popularity to turn it into something more stable and well-known, which is imperative for the value of any non-fiat currency. But finding the next big cryptocurrency is an elusive task and many cryptocurrencies have questionable value. On the other hand, real businesses that grow to produce cash flow or already have strong cash flow have a tangible value that can be estimated, and that value is typically measured in fiat currency such as dollars.
Fortunately, for investors that understand blockchain and cryptocurrencies better, there are opportunities to invest in businesses in the crypto space that use the underlying promising technology but are agnostic to the seemingly whimsical and unpredictable popularity of different cryptocurrencies. And some of these companies are quite small and have lots of room to grow. One such potential winner is CurrencyWorks, which is a really unique company in the crypto space with the right team and strategy to potentially grow exponentially and return investors many multiples of their initial investment at this time. However, CurrencyWorks’ value proposition is heavily weighted towards their long-term exposure to multiple blockchain projects they execute, so a big part of its value is somewhat hidden from an investor’s first glance. Additionally, CWRK shares are trading at roughly half of the price of their last capital raise, presenting investors an opportunity to jump in well below where investors formally valued the company at just a few months ago.
Primer on CurrencyWorks
CurrencyWorks describes blockchain as the following:
At its core, blockchain is a distributed digital ledger that stores data of any kind. The tech allows digital information to be distributed but not copied. That means each piece of data can only have one owner to solve the crucial issues of traceability, authenticity, piracy, and providence in the digital-first world. While cryptocurrency is the most popular use for blockchain presently, the true power this technology offers can serve an almost endless range of applications from supply chain management to smart contracts. The possibilities are limitless.
Source: Company Reports
With CurrencyWorks’ description, it immediately becomes clear that blockchain is the electronic solution against digital copyright and fraud issues, which could be a major boon for electronic art and copyright as well as information that is sensitive and attached to individuals such as medical records. As such, the company has adopted a multipronged approach to providing value in blockchain, 1) operating somewhat of a “job shop” to build corporate cryptocurrencies and other digital currencies (charging upfront fees and back-end exposure to the entire project, for instance, as a percentage of ongoing transactions), 2) building and managing non-fungible tokens (NFTs) and security token offerings (STOs) for various entities and 3) mining and cold storage. In total, these offerings serve as a full set of turnkey blockchain solutions for customers. In this way, CurrencyWorks is essentially a pick and shovel company in the crypto space.
That brings us to another question readers might have—what are NFTs and who cares about them? However, we will discuss digital and cryptocurrencies first and then move on to NFTs.
CurrencyWorks' Crypto Offering
As opposed to a tradeable cryptocurrency, CurrencyWorks uses crypto to establish corporate currencies for companies, with the benefit to them including reduction of transactional costs (lower than credit cards), and increasing customer adoption and engagement. Now, this seems like a very abstract concept, but perhaps the best way to think about it would be to think of Starbucks’ (SBUX) rewards program when their mobile app first came out. The highly successful customer engagement app was designed years ago to take advantage of digital engagement and it allowed users to order drinks ahead of time, which would allow them to not have to wait in line, allow them to save money using the rewards program, which would drive additional revenues by increasing the number of transactions from the average Starbucks app user, and it would integrate with other platforms like Spotify so users could identify songs being played over the speakers and save them to their Spotify accounts. This adds considerable intangible (brand) and tangible (revenue) value to Starbucks.
CurrencyWorks’ corporate currencies may operate in the background of their rewards systems or transactional systems, but have a similar value proposition by enhancing security and reducing costs. The easiest way to understand the potential uses and value creation here is to look at one of the projects CurrencyWorks has already completed: the KodakOne platform.
FreedomCoin
An example of CurrencyWorks’ corporate currency offerings benefiting customers is GunBroker.com’s FreedomCoin, which CurrencyWorks designed and implemented. GunBroker, a company that was recently acquired by Ammo, Inc. (POWW), which is a specialty ammunition producer. GunBroker.com is basically the online, legal eBay for firearms. It provides an informative, safe, and secure way to buy and sell firearms as well as ammunition, hunting gear, shooting accessories, vehicles, collectibles, and related other things online. Like eBay (EBAY), third-party sellers list items on the site, and that makes GunBroker.com the listing service. However, the law requires that firearms only be shipped to a dealer that holds a Federal Firearms License. This is part of the terms and conditions of any sale, which means that ultimately, any sale must take place at a gun shop, and therefore, gun shop owners have actually embraced GunBroker.com because it drives traffic to their stores instead of competing with them. The FreedomCoin is the underlying financial technology within GunBroker.com that attaches all legal information to each and every sale such that large amounts of paperwork do not have to be redone for every gun sale or purchase, with all information attached to a person’s account. What happens with the FreedomCoin on BitRail is, simply by someone entering in the last 4 digits of SSN, email, and phone number, in 60 seconds, they can get all the KYC (know your client), AML (anti-money laundering) checks, and firearms background checks, so they can be cleared to go on and use the GunBroker digital wallet in order to transact on their platform.
According to Ammo’s 8k detailing the acquisition:
We couldn’t be more excited about bringing the GunBroker.com team into the AMMO family. Everyone worked hard to make this happen - and we will now set about to further expand the GunBroker.com brand as we leverage the amazing IT platform Steve Urvan and his team developed to bring AMMO products and a host of other products and merchandise to the vibrant GunBroker.com marketplace,” said Fred Wagenhals, AMMO’s Chairman and CEO. Fred further noted that “the AMMO management team viewed the Transaction as accretive to our shareholders when we announced the letter of intent. With the Transaction successfully closed, our team has reached another vertical integration milestone for the Company, representing an opportunity to diversify our revenue base with high profit-margin business offered through a premier brand deploying best-in-class secure transactional technology.
According to GunBroker.com, the FreedomCoin, which is exchangeable at a one-to-one rate with the U.S. dollar, is not like typical cryptocurrencies that most people know of like Bitcoin and Ethereum, which exchange at variable rates with the U.S. dollar.
FreedomCoin essentially replaces other payment methods that cost too much and take too much time. When you use those traditional ways to pay, you get fees that are way too high and there can be annoying chargeback costs. The transfer of FreedomCoins is instant from one wallet to another, so you don’t go through a middle-man intermediary for transactions to clear.
They also basically provide the same protections as credit cards. Plus, you won’t have to worry about confusing conversion rates since each individual FreedomCoin is a one-for-one value with the U.S. dollar. Transactions are legal and fully secure. Apparently, payments will actually be faster with the reduced transaction fees too.
“We’ve heard the pain points of our merchant community. GunBroker.com is tapping blockchain technology to replace the need for other costly and time-consuming payment options,” Patricia W. Huff, Director of Marketing at GunBroker.com, said in a press release. “FreedomCoin represents the future of payments and an opportunity for people to use cryptocurrencies for everyday purchases.
Even more safeguards built into the platform help prevent fraud and ensure that whatever you purchase on there is completely legitimate. Information about who buys or sells what will not be openly shared on the blockchain and will remain private.
According to the GunBroker.com CEO, “Anyone who has purchased a firearm knows how painstakingly brutal it can be to deal with traditional credit card companies and other financial institutions.”
CurrencyWorks built the FreedomCoin on the back of another platform (an app) they built called BitRail, which enables e-commerce providers to use cryptocurrencies for payments in a fully regulatory-compliant way, in accordance with state money transmitter laws and FinCEN. One FreedomCoin is directly exchangeable for one U.S. dollar and users essentially just have access to hassle-free, faster, and secure payments with reduced transaction fees.
Clearly, the opportunities for CurrencyWorks to construct digital currencies are diverse and vast. The main question is just how lucrative are these projects?
One key thing to note is that these contract platforms should be very sticky since once the infrastructure is in place, there are barriers and hardly an incentive to tear it down. Once in place, there is little incentive to upend the entire project. And if the project continues to add incremental value for the customer, CurrencyWorks will simply continue to own or take profit share on the project indefinitely. So, in one sense these contracts, while not enormous, could be viewed as high margin in the long run with stable recurring revenues, sort of like a SaaS model.
Source: Company Reports
Issuance Projects
The second part of CurrencyWorks’ trifecta offerings is in issuing blockchain-related offerings, and this is done in facilitating token or coin offerings or with the new trend of NFTs, or non-fungible tokens. Perhaps the most important, but least exciting of their projects is the system they are building for the CSE (Canadian Securities Exchange) for token offerings and general security.
Canadian Securities Exchange
In the past, tZERO (OSTK) was supposed to launch the Kodak Coin, and in that respect, the coin would have been the first to be listed on tZERO, but the project never got to the position where they were liquid and/or fulfilled all regulatory requirements to list. So, what CurrencyWorks did to move forward was a deal with the Canadian Securities Exchange where they built the backend blockchain system for them so they can launch tokens, which have multiple uses: alternative financing and general security.
For alternative financing opportunities, security tokens will be listed as a non-dilutive form of financing or a way to syndicate assets. This would provide companies with an easier, quicker way to raise money for certain purposes apart from diluting shareholders. Examples of where this could be a good idea would include financing the development of a company’s drug where the company’s stock is (in the company’s opinion) too undervalued to dilute at the current valuation, with exposure to the future success of the drug in exchange. As another example, tokens could also be used as a syndicate for real estate assets where they would then have a market to trade on.
With regards to security, it’s a totally different value proposition. With the joint CurrencyWorks/Odyssey Trust Company/CSE blockchain platform, a unique security token can be associated with each issuer on the CSE that opts into the platform, enabling Odyssey Trust to provide issuers with deeper reporting information and enhanced transfer agent services which would be available as a result of the blockchain use. The blockchain reporting system will run parallel to the existing clearing and settlement services for CSE issuers.
While this project is somewhat abstract, CurrencyWorks working with the CSE and Odyssey Trust serves as a major validation that the company is legitimate despite its currently low revenues. As opposed to other exchanges or projects, the CSE is a fully-regulated, mainstream exchange—not a funky offshore crypto exchange—and as such any adoption of the platform in mainstream use could be great for CurrencyWorks.
NFT Offerings
The part of the CurrencyWorks story that might get people excited is their recent and seamless entrance into the NFT market, which is expected to be massive and extremely fast-growing. The last year has seen 1H NFT sales increase from $13.7 million in 1H 2020 to $2.5 billion in 1H 2021, and some even call for the NFT market to approach the market size of the global collectibles market, or $370 billion. Regardless, it’s an area of excitement, robust growth, and opportunity.
CurrencyWorks has already designed, led, and/or collaborated in a handful of successful NFT releases, including Wax and Topps, Barrett Jackson, and has multiple large entities in the pipeline such as the World Skateboard League, PETA, and the Japan Olympics. These NFT releases bring in revenues to CurrencyWorks in the form of development fees and transaction percentages, so each release provides incremental revenue for CurrencyWorks, and as the company scales and proves its worth in this area, it could charge more and do more NFTs. The major two NFT releases CurrencyWorks did so far were two significant successes. Garbage Pail Kids Series 1 inventory from Topps was turned into non-fungible digital collectibles and the first release (over $100,000 worth) was sold out in just over 24 hours.
Source: Company Reports
The way to look at the NFT business model and potential is to look at Dapper, the company that issued the NBA NFT platform. Dapper has the NBA as a customer but owns the NFT platform, and they have a long-term contract to operate the platform, they have revenue participation, as well as equity in the platform. This is a long-term sustainable model to facilitate the NFT market with customers. For a comparison, Dapper was recently valued at $7.6 billion with revenues in the double-digit millions. And a key part of these platforms such as Vuele (film industry NFTs) and Motoclub (car NFTs) is the ongoing transactional royalties CurrencyWorks owns through these, which explains their long-term value. So for instance, if someone who bought the NFT wishes to sell it, CurrencyWorks would make money off of the subsequent transactions.
One of CurrencyWorks’ key NFT platforms is Motoclub, where they have partnered with Barrett Jackson to offer automobile collectibles. These NFT drops, all of which so far are captured moments and memorabilia from the Barrett Jackson Las Vegas 2021 Auction, have been notable successes (with a recent drop selling out in 6 minutes), each selling out quickly and beating revenue expectations. The entire platform for trading the NFTs is expected to launch soon, and subsequent NFT drops will continue. Much like NBA Top Shots, this platform will include a stream of NFT packs and tradeable collectibles intended to sustain the project as a desirable platform. Do these NFTs really trade, though? This is important for the long-term value of the platform for CurrencyWorks. One can’t look at the trading history of the Motoclub NFTs yet as the platform isn’t yet up for trading, but Vuele, the movie platform, has some trading history, at least for the NFTs that are on OpenSea and not the Vuele platform.
Source: Company Reports
On OpenSea, one can see that some of these NFTs, worth thousands of dollars, have already traded hands more than once, as they were sold from Vuele and then resold to other users. The subsequent Vuele NFT drops will mostly trade on the Vuele platform as they will be marketed towards movie fans.
Source: OpenSea Website
So why do organizations partner with CurrencyWorks to launch these platforms, currencies, and NFT drops? After all, this is an important point as theoretically any company could decide to do what CurrencyWorks is doing. It comes down to expertise in the design and regulatory space. According to CEO Cameron Chell on a recent podcast:
So if an organization wants to, say, for example, launch a film, and they want it on the blockchain, and they want to do an NFT with it, and such, you can do it on certain marketplaces out there. But there aren’t IP protections. If somebody else wants to come and buy that particular movie or the NFT of that movie, there’s no know your client rules, there’s no banking regulations, there’s no—all of that type of stuff—and now the challenge with that is, if you can image, a large studio, you know, wanting to do NFT work, or wanting to put their films in the blockchain, or take advantage of all the amazing tech out there, they can’t really do that because they cannot get into a situation where they have people buying these NFTs or trading NFTs or circumventing securities regulations or accepting money from nefarious actors and such. And so the whole blockchain and the market won’t mainstream until we can get the larger organizations or the mainstream organizations in a position where they can actually transact on blockchains, so that’s really our focus.
Crypto Mining Operations
As CurrencyWorks’ offerings have been well-received by customers, the company has faced the hurdle of making sure that their customers not only have improved offerings through CurrencyWorks’ blockchain solutions but can do so in a cost-effective manner. As such, to truly provide end-to-end solutions for their customers, CurrencyWorks searched for a way to provide low-cost crypto mining solutions for its customers.
The idea isn’t necessarily to mine cryptos as a brute force method, as do some companies like Marathon Digital Holdings (MARA), which has returned 100x from 2020 lows. The idea, at least initially, is to provide the lowest-cost mining capabilities for current and upcoming clients. And the way this is being achieved is admittedly very creative. CurrencyWorks announced its initiative, Zer00 crypto mining platform, to mine crypto using zero-cost energy.
Wait, how does one acquire zero-cost energy? The company has partnered with Fogdog Energy Solutions, a waste solutions company, to combine the conversion of municipal solid waste (MSW) into energy, and that energy to crypto mining.
Source: Company Reports
CurrencyWorks will still have to purchase the mining rigs, but the ongoing power costs will be nothing. It appears that Fogdog gets a loan from CurrencyWorks to jumpstart the production of this MSW processing (pyrolytic) line, warrants for CWRK common stock, and perhaps tipping fees for accepting and processing the solid waste, as well as potential carbon credits. The good part of this agreement for CurrencyWorks is that it is scalable, and it appears that both parties share some costs and benefits.
Whether or not it appears that investors should assign any cash flows or value from these operations to CWRK stock is debatable. Either way, it supports the end-to-end solutions the company provides to its customers, and it is a worthy ESG (environmental, social, and governance) cause to support. The company tripled its investment in this initiative with Fogdog recently. Presumably, the economics associated with treating MSW with this company’s technology are favorable. CurrencyWorks’ CFO, Swapan Kakumanu, is an entrepreneur, an angel investor, and is also CFO of Fogdog, so presumably, he has a good understanding of the economics associated with the project from both ends.
The company may expand the bitcoin mining originally meant for customers for node management, cold storage, etcetera, may be used to simply mine bitcoin, so a smaller, cost-effective miner compared to other pure-play miners might be a good way to value this part of the future business. In the long run, CurrencyWorks aspires to be the cleanest, lowest-cost crypto-miner in the space.
Select Management and Board Members
CurrencyWorks was founded by and led by Chairman Cameron Chell, who has a long history (25 years) as a tech entrepreneur. He has been an advisor on two ICOs and is the founder and co-founder of several successful ventures including Business Instincts Group and Draganfly (DPRO).
Bruce Elliott, President of CurrencyWorks, is a 25-year eCommerce veteran who has held senior leadership roles in privately held and listed companies in online payments, gaming, venture capital, and trust and corporate service sectors in North America and Europe. Mr. Elliott is a recognized international conference speaker on entrepreneurship, venture capital, and emerging technology trends and has also led venture capital investments into cleantech and gaming.
Lending credence to the company's plans and aspirations with securities exchanges is director Ed Moy, who has a successful track record in both publicly and privately held companies as a senior executive, and director. Notably, from 2006-2011, he served as Director of the United States Mint. His other roles include Special Assistant to the President for Presidential Personnel at the White House, and an advisor to the private equity firm Welsh, Carson, Anderson & Stowe. He was also an officer at one of the U.S.’s largest behavioral health care companies, First Hospital Corporation. Ed has worked with CurrencyWorks since 2017.
Competition
The reality of the situation is that many extremely large companies like Walmart (WMT) and Starbucks probably have the budgets to use an in-house team to tailor solutions just for them. The smaller of the Fortune 5000 companies are the company’s ideal client targets as they might not have the resources to develop in-house blockchain solutions.
The company’s annual report cites a number of competitors such as IBM (IBM) and ConsenSys, but it doesn’t appear that any of them are directly competing with CurrencyWorks at this time. Of course, Dapper is also a competitor. And of course, somehow Facebook’s (FB) and Libra Association’s Diem stablecoin should be considered competition.
Any significant bitcoin mining operations will put CurrencyWorks in competition with Riot (RIOT) and Marathon Digital as well as a number of private crypto mining companies.
Valuation
Valuation of CurrencyWorks is a bit of an odd task since they have a somewhat proven business model; that is, there is clearly a demand for their products and services (and crypto mining is becoming an accepted business model). However, the long-term profitability of these projects they undertake has not had the time to mature, so it is difficult to say what kind of value the average corporate currency or NFT project will yield in the long term. However, if or when these projects gain traction, there is little incentive for the company or consumers to change their habits, so the platforms developed will have a stickiness aspect to them. Another thing to note is that CurrencyWorks has a somewhat long sales cycle and then there is a lag time whereby a project will yield service and development fees, then mature into producing transaction fees. So investors have little insight into how the contracts are built and what thresholds will yield transaction fees for CurrencyWorks, but it is established that most projects will yield at least a 1% transaction royalty in the long run, so that figure will be used.
We will value CurrencyWorks using a “sum-of-the-projects” estimation. Note that more projects are likely in the pipeline but are unknown and therefore not included.
Project | Development Fees (k) | GTO/Royalty | Ownership | Valuation (m) | Value to CurrencyWorks (m) |
CaliCard | $150 | Unknown | 7% | Unknown | Unknown |
FreedomCoin | $2,000 | 1% | 20% | $15 | $3 + $7.5 |
Token Reporting System | $0 | 2-5% | 100% | N/A | Unknown |
Motoclub | Unknown | 1% | Unknown | Unknown | Unknown |
Vuele | Unknown | 1% | Unknown | Unknown | Unknown |
Mining Operations | $0 | N/A | N/A | N/A | $10 |
Total | $20.5 | ||||
Valuation Details
CaliCard
CaliCard is a joint venture between the 5 largest cannabis retailers in California and CurrencyWorks, they’re equity holders in CaliCard too. This electronic currency allows these retailers to be able to provide delivery services without having to worry about accepting cash. It also provides instant KYC (know your client) and AML (anti-money laundering) and allows for instant signups as well as remote and in-store use (QR code or NFC). This aids the companies competing in the $4.4 billion California cannabis market by dealing with a big headache of theirs:
Marijuana can be sold legally in 36 US states and the District of Columbia (DC) for medical use and in 15 of them and in DC for recreational purposes. But it is still illegal on a federal level, meaning most banks refuse to service the industry in case they fall afoul of money laundering laws.
With the COVID-19 pandemic and increasing legalisation driving a surge in cannabis use, the sector’s producers, manufacturers and retailers are awash in cash, adding risk and costs to the most basic business transactions from paying employees and filing taxes to finding somewhere to store their income.
“All this cash flowing around is just a recipe for disaster,” said Smoke Wallin, chief executive of hemp health products maker Vertical Wellness Inc. “How do you account for it? Where do you keep it? How do you move it? Even in a safe, it’s a security risk for employees.
However, with many anticipating federal legalization of cannabis, it is unclear what long-term value CaliCard will have or if it will continue to be used for its security and convenience. With unknown fees paid to CurrencyWorks and an unknown valuation on the platform, we conservatively ascribe zero value (for now) to this asset even though it has utility in lowering merchant fees in basically any other business with an online payment portal.
FreedomCoin
There are two ways that FreedomCoin provides value to CurrencyWorks. First is through their ownership of the platform, which was given a $15 million valuation. I find this believable given GunBroker facilitates an annual $1.2 billion in transactions, bringing in about $60 million in its own revenues. The company was purchased for $240 million by Ammo, Inc. We assume a GTO of 1% just as a conservative way to estimate a lower transaction fee. Credit card fees can vary, but average around the 2% range. On average, this can reach 3-5% for Visa (V) cards as a transaction cost. For some digital goods, firearms, gaming, and esports transactions, charges can actually reach up to 8% in some cases. As transactions using the FreedomCoin build, CurrencyWorks should start to see significant high margin revenues coming from this platform.
Assuming 10% of the $1.2 billion in transactions is eventually facilitated with FreedomCoin, one might estimate about $1.2 million annually paid to CurrencyWorks. Assuming this value is 5 years out at a discount rate of 10%/yr, and using a P/S of 10x, the current value of royalties works out to be about $7.5 million.
Token Reporting System
As mentioned before, the regulated ICO/STO industry is not yet mainstream, but CurrencyWorks believes that once regulators continue to move towards STOs and as the ability to make sure that these markets are liquid and regulated, this market will open up and CurrencyWorks should be on the leading edge as it is working with multiple regulators, exchanges, and Fortune 500 companies anticipating progress on this front.
CurrencyWorks will receive 2-5% of the transaction fees or smart contracts and will own 100% of the smart contract exchange platform. Compared to an average fee of 5.4% for IPOs (range 3.5%-7%), hypothetically these lesser fees could save money for companies raising capital. For smaller deals, it appears the fees could be even larger as a percent of the deal:
Source: PriceWaterhouseCoopers
Zero value is assigned to this initiative at this time, despite the promise.
Motoclub, Vuele, Wax and Topps
For the sake of being concise, Motoclub, Vuele, and Wax and Topps are all projects or companies CurrencyWorks is working with to build out digital wallet NFT platforms. Motoclub is with Barrett Jackson for car NFTs, Vuele is for the film industry, and Wax and Topps are digitized versions of traditional collectibles. None of the financial terms for these ongoing contracts are disclosed.
Mining Operations
The quickest way to assign some value in CWRK shares to account for their bitcoin mining platform is to price in one facility’s worth of mining and compare that hash rate to the overall hashing rate of a bitcoin mining company like Riot. Riot, however, has about $190 million worth of BTC on its balance sheet as well as $147 million in cash. That means about $2.35 billion is their non-cash market capitalization (important since CurrencyWorks has nowhere near the cash Riot does). Comparing potential hash rates, we will assume CurrencyWorks has just one of their facilities running 200 80TH/s machines, whereas Riot plans to have a total hash rate of 7.7EH/s (one million times a TH/s). That’s 475x one CurrencyWorks location (though CurrencyWorks should have zero cost). Thus, using Riot’s market cap, we should value one CWRK location at just about $5 million. And CurrencyWorks intends to scale this operation. But for now, let’s assume just 2 locations (slightly forward-looking), so $10 million in value. It’s also possible that CurrencyWorks is able to get its hands on next-gen mining equipment, so the hash rate I have assumed could be significantly higher, in reality.
Summary
Using 95,375,999 fully diluted shares (with the average warrant and option price ~$0.80) [1, 2], the diluted market cap is much higher. But since the average option and warrant strike price is much higher than what the stock is trading for, these can be ignored for now. Using issued shares of 64.7 million, the current market capitalization is $24 million, just over our estimate that leaves out the value of most of CurrencyWorks’ current/completed projects. Since these projects are hard to put numbers on, and CurrencyWorks has said they have a robust pipeline, my opinion is that the stock should probably at least rise back up between $0.80 and $1.00, the prices of the recent stock/warrants capital raise. This would give them about a $75 million market capitalization, which seems more reasonable to me, subjectively. If this company continues to make progress with mining and additional NFT platforms and currency projects, and can ramp up revenues modestly while controlling costs, my opinion is that the stock will go much higher in the long run. But, this is extremely speculative. At least it seems the CEO agrees with me as he purchased 60,000 shares about a week ago.
Financials
Operating expenses are somewhat low with SG&A able to be reduced just to a few $100k depending on the work being done on various projects. What is a head-scratcher, however, is the absence of income related to development fees on the projects. Perhaps they have not yet been recognized and come after incurred costs of development.
According to discussions with management, it seems CurrencyWorks is in the situation where they believe they could grow into profitability within a year based on current projects and pipelines, but with a robust pipeline with potential large projects, the company may choose to accelerate growth and forego being cash flow positive sooner.
Risks
This is a high-risk investment despite its exposure to so many different industries and projects. Key risks that could affect the stock or the underlying business include Bitcoin prices (due to mining), competition (particularly on the NFT and corporate currency side), crypto mining getting increasingly competitive with the race-to-the-bottom cost of mining (increased investment from competitors into next-gen ASICs). Particularly, competition such as NFT platform companies establishing dominance before CurrencyWorks can gain market share would be detrimental to their endeavors in this space. There are also significant financial risks, where the company is currently not profitable. In order to accelerate growth, they will likely need to raise additional capital at some point.
Conclusion
CurrencyWorks shares have gone on a wild ride over the last two years, fueled by the cryptocurrency craze and subsequent crash instead of steadily increasing in value as they participate in new project ventures and then own parts of those valuable projects. All in all, while the financials still have to “prove themselves,” the company has worked with various reputable entities on blockchain projects, and some of these projects have seen measurable success, particularly the FreedomCoin, KodakOne, and the various NFT launches. This makes it easier to see that CurrencyWorks can succeed in the future despite unclear finances as of now. Their offerings are valuable and they have proven that they can secure contracts with reputable companies. With future successes, it may become clearer just how much more progress CurrencyWorks is able to make and the resulting cash flows it might bring in.
CurrencyWorks stock essentially prices in the progress the company has already made but little to none of any future progress (which explains the capital raise at much higher prices). I’m not sure all the math on the valuation is correct, nor am I sure that my assumptions are exactly correct; however, if the company keeps progressing and a few of the currency projects or NFT platforms they establish and operate are successful, or if the Zer00 mining works out and can be scaled, then the investment could play out in spades. Thus, I have established a small speculative position in CWRK stock around the current trading levels for additional exposure to blockchain and crypto.
Surely not every application CWRK works on will pan out to be such a massive success, as each and every one of them can somewhat be viewed as its own business venture. But as the company amasses exposure to various projects like GunBroker.com, the long-term value of the company and its cash or coin flow should slowly but surely increase. The company has proven that it is an excellent partner and one-stop-shop for digital currency and blockchain applications for other businesses as it has won and executed contracts with respectable and large businesses such as Barrett Jackson and GunBroker.com, but the long-term profitability and value of the company still needs to be proven.
