On February 8th, I attended Cryptonight, run by my associates at Thinking North. This night featured speakers with expertise in the blockchain industry and five presenters of publicly traded or private companies which are either in or trying to get into the space. The audience was around 100 or so risk-tolerant investors looking for early-stage deals.
Have a look at Thinking North's Twitter account and website for more information on what they do. They plan on starting their own blog in the near future and I offered my services to contribute content on there, so keep an eye out for that.
The night opened with keynote speaker Kal Kotecha from JuniorGoldReport.com, an associate of mine who introduced me to MGX Minerals (OTC:MGXMF) (XMG.C), an investment in which I am substantially profitable. Kal did an amazing speech summarizing the opportunities and headwinds with the cryptocurrency market. This is my summary of what he said about cryptocurrency in one tongue-twisting sentence: Not all cryptocurrencies will survive; a cryptocurrency's success will depend on the demand for the service that is solved by computing power in which the token compensates for processing transactions on the blockchain.
When I was first introduced to the cryptocurrency world, I was skeptical, not quite understanding what the underlying value was that grew valuations to many billions for some altcoins. While blockchain, bitcoin, cryptocurrency and altcoins are new words to many, they will operate with the same supply-and-demand dynamics as any industry would. There are many different potential applications of the blockchain, and each will compete for the computing power needed to run that particular blockchain's ledger through the value of its altcoin.
The altcoins created to compensate for the computing power used for blockchains that solve problems that really need solving will do well. Those coins must rise in price to compensate for the increasing cost of the electricity and hardware needed to keep those blockchains active and miners profitable as the coins become increasingly scarce to mine. If there is insufficient demand for a certain service that a blockchain ledger solves, the price of the coin will fall and miners will stop mining it and try to retrofit their equipment to mine a more profitable coin. That blockchain will grind to a halt and will stay that way until enough demand for the underlying application re-emerges and the price of the coin rises to entice miners to come back.
This concept is no different than a company that will manufacture widgets until the price of widgets fall so that this no longer becomes profitable. The company will try to survive by retrofitting its equipment to manufacture gadgets instead. If widgets become back in-demand, the price for them will rise and manufacturers will start making them again. Just because the blockchain ledger economy exists entirely on the internet does not make it any less of a valued-added economic process.
There always remains a possibility that humanity at large decides that a nomadic lifestyle in the forest is the way to go and abandons the internet so that all cryptocurrency will be valued at what some think all virtual assets should be valued - at zero. But so would a lot of things under this circumstance, and humanity would take a big hit in quality of life in my opinion (some people would love it). I believe that blockchain and the underlying compensation structure through cryptocurrency will play a central role to the new economy. A new economy where robots take up all the blue collar physical labor jobs that people use to do and even a lot of service jobs that people still do. If they still want to put food on their plate, they will either have to join Antifa and take down the automated capitalist system or they are going to have to find creative and entrepreneurial ways of earning income, like leveraging their computing power for altcoins.
Some people dislike the cryptocurrency world because of the volatility. Speculation will always be mixed in with any trading vehicle, but that will be short term noise against the long-term economics of these new, trustless and decentralized computing processes. I believe that forward contracts on cryptocurrencies will be a major breakthrough needed in the industry much like farmers use forward contracts on corn to stabilize their income months ahead of harvest time. There will be two types of people in this industry - the speculators who use them as a trading vehicle and the miners who view the industry as their livelihood.
There was one part of Kal's speech that irked me a little bit. He mentioned that in 2010, bitcoin's average price was $0.06. A $1,000 investment in bitcoin would be worth over $100 million today. I believe he was trying to set the tone for the investment opportunity that is still there, but my first instinct when he said this was that there is no point in crying over missed opportunities, since it really wasn't an opportunity for me back then anyways. I had heard of bitcoin at that time, but had no idea how to buy it. If it was available for investment on my TD Waterhouse account, I would have thrown some pennies at it for fun. But it wasn't. The alternative was to mine for coins but I had no idea on how to do that either. Plus as an investor, I want to be invested in the Ubers of the world early. Not be one of the first people to drive my vehicle for Uber. Bitcoin is as popular and expensive as it is today in large part because it is easier to buy it than ever before, though by no means is it anywhere near as easy to buy or transact in as fiat currency or even gold.
That leads me to why I like Fintech Select Ltd. (OTC:SLXXF) (FTEC.V) so much. As I have mentioned before, FTEC is trying to bring bitcoin to the masses by releasing thousands of point-of-sales terminals across Canada. Unfortunately the company was unable to attend Thinking North's Cryptonight as originally planned. Some people complain that the firm isn't getting its locations out quickly enough. My rebuttal to that would be that the market cap is (non-diluted) $15 million right now. Even when FTEC was trading at $0.60, the valuation topped out at (fully diluted) $50 million. You get what you pay for in this world. If you want to play in microcap stocks with little cash on the balance sheets, you have to expect that things aren't going to go as smoothly as you had hoped.
Rather than looking to the slow roll out - there are 22 locations out so far - as the source of the stock's recent weakness, one should look at management. I think CEO Mohammad Abuleil has done a marvelous job so far in maneuvering FTEC out of the mess it was in from its legacy business. Namely the vast improvement on the balance sheet, though more improvements need to be made. But he is not a talker and not a promoter and has been very reluctant to pay for promotion or marketing, much to the chagrin of some investors. The former may have contributed to FTEC's cancellation of the presentation because it needs a "face" for the company to explain this opportunity, and Mr. Abuleil is not that no matter how much I approve of his business decisions otherwise. The latter I actually agree with. FTEC shouldn't need to "promote" the stock. This is a great story. The news outlets (legitimate ones, not penny stock sites) should be coming to FTEC to report about this new bitcoin point-of-sales service that seeks to open over 5,000 locations in Canada and has opened over 20 so far. And I believe that they will.
The Mint Corporation (OTCQB:MITJF) (MIT.V) was the first company to present. Vishy Karamadam, CEO of MIT, did an excellent job of summarizing the investment opportunity in a flawless presentation. Up until now I have been reluctant to make MIT a top pick of mine because the balance sheet looks like a complete dumpster fire. But after seeing this presentation and knowing that Mr. Karamadam is the Executive Vice President of Gravitas Financial and Co-Founder of Ubika Research, I believe that there will be deep pockets and brokerage house support on it despite the ugly balance sheet.
Part of the reason why MIT's balance sheet looks so bad (over $60 million in liabilities and only $4 million in assets) is that the company has spent millions in building out its platform in the U.A.E., a value which cannot be captured solely by looking at a line item on a balance sheet where conservative accounting policies rule.
MIT currently provides licensed payroll disbursement services to over 800 corporations in the U.A.E. and their 400,000 unbanked employees. But more importantly, MIT believes it is now ready to offer a full suite of banking services, including remittance services, to those employees. Dubai is tourist city with a lot of menial services jobs available and the U.A.E. is in fairly close proximity to developing nations like India and Bangladesh. Therefore it attracts millions of unbanked migrant employees whose primary motivation to work there is to earn a decent income to support their family back home. Mr. Karamadam explained that in the current process, those 400,000 workers must bus, bike or walk to the nearest location that offers remittance services once getting their pay. MIT wants to be able to eliminate this step where not only can these workers remit payments back home through MIT's platform, they can do pretty much any type of financial service. MIT's payroll disbursement card will essentially become the unbanked employee's "bank account".
At a $0.325 stock price, MIT's market cap is $55 million. With debt less cash being around $60 million, the enterprise value is $115 million. So with 400,000 workers already on the platform, MIT is valued at close to $300 per user. This is a fairly aggressive valuation for users primarily from developing nations with low per capita incomes. However, one must consider that unlike a Facebook or even a TD or CIBC app, MIT hopes to become the financial lifeblood for its users. If everything goes to plan, MIT's users will use this card for everything outside of pure cash transactions, unlike in the first world where people have access to a myriad of debit and credit cards as well as mobile and online payments services. The addressable market is 5 million workers in the UAE, and MIT believes that it is well set up to target the rest of the Middle East and its couple dozen million more migrant workers where similar licensing processes exist. So MIT has a ton of upside, though it must continue to execute in order to be a successful speculative investment.
There were four other companies that presented at the event. Two private companies - ePIC Blockchain Technologies (focused on developing ASIC chips specifically designed for cryptomining) and Bullet ID (plans to use the blockchain for authenticated ammunition tracking) both sounded interesting, but are looking for private investors. I think Bullet ID will have some military applications, but will be hard-pressed to find their technology hit the mainstream in the United States as it would very likely be met with opposition from the NRA.
Neptune Dash Technologies Corp. (OTCPK:NPPTF) (DASH.V) is a recent listing that is trying to emulate an ETF on Dash cryptocurrency, plus an 8.5% yield on its mining operations (less whatever opex may come with that). I own a bit of this company as a short term trade on DASH. Canada One Mining Corp. (OTCPK:ANGUF) (CONE.V) is Vancouver mining shell with plans to move into the cryptocurrency world, but did not divulge any specific plans as it is still evaluating potential deals.
Disclosure: I am/we are long SLXXF, MITJF, NPPTF.
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