The bitcoin space is incredibly active right now, with the digital currency grabbing headlines across pretty much the full scope of financial and mainstream news media outlets. The driver behind this increased attention is the surge in price of the underlying asset throughout 2017 to date. Bitcoin is up more than 300% over the last few months alone. Ethereum, a slightly less well-known crypto currency, but one that has incredible potential in the space nonetheless, is up more than 2000% year to date.
The cryptocurrency space experienced something of a correction at the start of July, with its major assets (bitcoin, Ethereum etc.) dipping in price across the period. Just as mainstream media helped to boost price before the correction, the same outlets served to compound the downside run early-month with what has since proven to be misjudged coverage.
Misjudged or not, this coverage resulted in a parallel correction in the public companies that had risen on the back of bitcoin’s advance. Many public markets operators wanted to pick up an exposure to said advance without buying bitcoin itself, and the method they chose was to buy shares of companies associated with the digital currency. Right now, and rooted in this market being a nascent one, the majority of these companies are traded over-the-counter. As such, once financial media started covering bitcoin’s correction, these operators sold out of their exposures and the companies took a hit.
We are just about to enter into August and the space is rebounding. Bitcoin is once again on the up and this means that those companies that ran throughout the first half of this year and subsequently corrected should once again see a return to the overarching upside momentum near term.
One such company, and one that we have covered before against a backdrop of this bias, is BTCS Inc (OTCMKTS:BTCS). Unlike many of the companies in this space, BTCS has been around for quite a while. The company started out as a retail type operation allowing individuals to buy goods through its platform using cryptocurrencies and based on real-time conversion rates.
Over the last six months, however, management has sought to reposition the company as a sort of all-encompassing type operation, with operations spanning process transaction (read: mining) and – more recently – a shift towards what are called initial coin offerings (ICOs). ICOs are essentially IPOs (and named as such) designed to offer startups in the space a way to raise capital quickly and easily through the issue of the coins (or tokens) that underpin the nature of their startup.
If BTCS can get a hold of this market, which is already worth half $1 billion (based on capital raised to date) and which is likely to grow exponentially over the coming two or three years, it could offer a considerable rate of return on current prices to an investor looking to get in early.
In parallel to this thesis, there also exists a near-term model against which an investor can look to pick up some return on the back of BTCS appreciating in line with bitcoin, as was the case throughout the earlier half of this year and as looks set to be the case throughout the latter half.
It’s important to keep in mind that these sorts of exposures have plenty of potential upside, but they are far from risk-free.
BTCS, having been one of the early movers in the space, fell foul of what amounts to mistiming, essentially coming to market with product a year or two early. This resulted in the company racking up some debt and having to issue convertible notes in order to fund operations. Management has taken steps over the last three months or so to try and clean up the balance sheet and give the company a solid platform from which to expand into the space now markets have caught up with it (as detailed in the letter to shareholders), but the financials are far from squeaky clean and there’s a good chance we will see dilution (in whatever form) at some point over the coming twelve months.
This isn’t prohibitive to an exposure, but it’s a consideration for anybody thinking about taking a position right now.
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Image courtesy of Steve Garfield via Flickr
Disclosure: We have no position in BTCS and have not been compensated for this article.