BTCS recently announced a strategic shift towards cryptocurrency ICO investing and a desire to expand its crypto mining operations.
Does this news mean BTCS is a good investment? I’m interested in looking at BTCS as an investment for a number of reasons:
- Many cryptocurrencies aren’t super easy for the average Joe to purchase or use… not in the U.S. With BTCS being a publicly traded company, it now provides a simple way to purchase exposure to cryptocurrency movements and volatility.
- BTCS can build a diversified basket of cryptocurrencies far more easily than I can.
- Already existing Bitcoin ETFs are very expensive, which doesn’t make sense for 1- a passively managed fund and 2- a currency.
- Investment in BTCS also gives an investor exposure to cryptocurrency mining. The value of this depends on your outlook for future crypto prices. In general, I’m bullish.
- BTCS is the only public company focusing on this investment strategy, meaning that if interest in this area continues to grow, investor interest will grow as well. This should have a positive impact on BTCS share prices.
Beyond cool keywords like “cryptocurrency” and “ICO”, though, a potential investor must consider BTCS’ tumultuous past.
BTCS was founded in 2013 by two NASA engineers who created Bitcoinshop.us LLC after seeing a void in the e-commerce market (i.e. no way to spend bitcoins). The company went public, and has since changed its business model every year.
In 2015, a filing from BTCS indicated that there were concerns within the company’s management about its ability to sustain operations: “Because of recurring operating losses, net operating cash flow deficits, and an accumulated deficit, there is substantial doubt about the Company’s ability to continue as a going concern,” the filing reads. “The Company will require significant additional capital to sustain its short-term operations and make the investments it needs to execute its longer term business plan. The company’s existing liquidity is not sufficient to fund its operations and anticipated capital expenditures for the foreseeable future.”
At one point the BTCS business model was focused around creating a vertically integrated mining company through a merger with Spondoolies, but that deal fell through at the same time that the company failed to list on a national securities exchange amid continued financial losses (from January 1 to September 30, 2016, BTCS reported a net loss of approximately $26.9 million. At that point, the company had no cash and cash equivalents outstanding and a working capital deficiency of about $24.3 million).
Last year was quite turbulent for BTCS. In July 2016, BTCS Digital Manufacturing (DM) suspended its North Carolina transaction verification services facility operations. A reduction in the block reward from 25 bitcoins to 12.5 bitcoins, along with the facilities cooling system failing, resulted in DM being unable to meet certain of its financial commitments. BTCS has subsequently ceased operations at DM. In August 2016, DM discovered that its facility in North Carolina was broken into and certain of its equipment and approximately 165 Bitmain transaction verification servers leased from CSC Leasing Company (CSC) were stolen.
“Simply put: 2016 was a disaster. We took a very contrarian view in 2015 when bitcoin was around $230. We teed up a merger and invested $2.25 million in Spondoolies-Tech Ltd. We also built-out a large facility in North Carolina to mine bitcoins. However, we were unable to convince investors of our contrarian view regarding the potential upside in bitcoin price and failed to raise $5 million to execute on our business plan. We did manage to raise a convertible bridge loan at the end of 2015 in hopes of raising a larger round in 2016. Unfortunately, we did not consummate a larger round in 2016, we subsequently defaulted on our bridge loan, the note holders converted to common stock, and our stock price declined. The remainder of 2016 was spent addressing a long streak of unfortunate events, from having our 200-ton cooling system refuse to cooperate at our North Carolina facility, to being burgled to mention a few. Hind sight is 20/20 and while we were right in our bitcoin price prediction, we didn’t raise sufficient capital to execute on our plan.”
“2017 is a year to rebuild” … but the statement below is full of mist with no definitive plan to attract investor capital…
“If we can restructure our liabilities and raise additional capital, we see huge opportunities for 2017 and beyond. The rise of digital tokens as a new asset class has created an information void and tremendous opportunity for us to leverage our experience in the sector. As the world’s first pure-play blockchain and bitcoin public company, we believe we are well positioned to capitalize on emerging opportunities. Additionally, we plan to opportunistically pursue acquisitions within the industry that may allow us to create shareholder value… Moving forward, subject to the completion of additional financing, we plan to create a portfolio of digital assets, through participation in initial coin offerings, strategic market purchases, and by resuming our transaction verification services business, through outsourced data centers. We are also keenly focused on the potential acquisition of target opportunities across the blockchain space.
So what are we actually buying?
“We believe the rise of digital tokens as a new asset class has created a tremendous opportunity for us to leverage our experience in the sector. One of our most significant assets in this regard is our seasoned team of industry leaders who are recognized for their deep relationships with key players in the space. Our team’s value is further enhanced by our ability to bridge the gap between public company experience and blockchain expertise, which we believe fills a major talent void in this burgeoning arena.
Here’s the key takeaway from all the above: “We believe our track record of identifying opportunities within blockchain technologies speaks for itself.”
There it is. When you buy BTCS, you’re not buying infrastructure. You’re not buying a cryptocurrency, a mining hedge fund, or even an e-commerce portal. What you’re buying is the MANAGEMENT.
It seems to me that BTCS is a company not lacking in focus, but lacking in ability to execute its plan.
While it is easy to point to the fact that BTCS management HAS been correct on cryptocurrency and blockchain trends, it is also discouraging that they are having difficulty finding investor capital at a time when blockchain is all the rage and ICOs go instantly bananas. My direction on BTCS is unclear and requires further investigation.
Join me next time as I dig into some of the technicals and current sentiment for BTCS stock.
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I’ve aggregated all my crypto related articles here: A Growing Cryptocurrency Resource