bitcoin

BTCS Is Not Bitcoin – Seeking Alpha


The recently released quarterly report of BTCS Inc. (OTCQB:BTCS) shows that the company lost 94% of its total amount of assets and 99% of its total amount of cash. As of November 26, 2018, the company’s market capitalization is $7.44 million with cash and digital currencies per share equal to less than $0.00007.

With this in mind, as of today, the stock seems highly overvalued. Investors acquiring BTCS to get exposure to bitcoin should notice that the stock should not follow the price of the bitcoin. The new number of shares issued and the stock dilution drive the company’s stock price.

Source: Prospectus

Business

Founded in 2013, BTCS casts itself as an early entrant in the Digital Asset market and one of the first publicly traded companies to be involved with Digital Assets and blockchain technologies. BTCS seems to be one of the few entities acquiring both cryptocurrency and stakes in other companies operating in the blockchain industry. The images below show the way the company presents its business to investors:

Source: Company’s Website

Source: Company’s Website

The company searches business entities in the blockchain sector, having sufficient capital to provide working capital and cover public company expenses. The first criterion is simple as there seems to be many startups launching blockchain businesses. The second requirement is complicated as most emerging companies in this industry don’t have plenty of cash to run their operations.

BTCS looks for companies with sufficient cash as the company is not being properly financed. According to the annual report, BTCS had issue regarding registration with the SEC, so it cannot finance its operations with non-toxic capital. Read the following lines for further details on this matter:

The requirement that a potential target have sufficient capital is a result of our inability to have our registration statement initially filed with the SEC on August 10, 2017 declared effective which has severely limited our ability to raise non-toxic capital. As disclosed in this Amendment No. 1 we have limited cash, and accordingly as a critical framework element are seeking acquisition targets with sufficient capital which may help us sustain our operations without having us rely on toxic funding structures.” Source: Prospectus

With this in mind, investors should understand why shareholders are suffering massive stock dilution. The company was not able to sell shares in the NASDAQ or the NYSE, so it is issuing warrants and convertible preferred stock. The image below provides further details on this matter:

Source: Prospectus

As these convertible securities are converted into stock, the number of shares outstanding increases and the intrinsic value decreases. The share price did not seem to decrease, not because the acquisitions did not work out, but because of the stock dilution.

Source: Ycharts

In 2018, the price of each bitcoin (BTC-USD) decreased, so certain investors may believe that the company’s business is declining. While the bitcoin’s decline may have affected the industry as a whole as well as BTCS, stock dilution is what’s driving the value erosion on this name.

Bear in mind that since 2018, shareholders of BTCS lost more than 84%, and bitcoin owners lost less than 65%. With that, those who bought stock of BTCS when the shares started trading in 2014 lost more than 99% of their total investment. With this in mind, investors should understand very clearly that buying BTCS is not comparable to buying bitcoin. The images below provide further information in this regard.

Source: Ycharts – Bitcoin

Source: Ycharts – Value Destruction

The Cash In Hand Has Almost Disappeared

The annual report reads that BTCS’s most valuable assets are market knowledge, long-standing business relationships of the company’s employees and cash in hand. As of September 30, 2018, the cash in hand has almost disappeared, and investors should wonder whether the company had the market knowledge noted in the annual report.

As compared to the balance sheet reported in December 2017, the company lost 94% of its total amount of assets and 99% of its total amount of cash. Additionally, the amount of investments in digital currencies decreased from $0.217 million to $0.015 million. The image below provides further details on the massive asset destruction:

Source: Prospectus

On the liability side, the company does not have debt, which seems beneficial. However, BTCS reported a 67% increase in the total amount of liabilities. Additionally, As of September 30, 2018, the equity is negative. It reduced from $0.513 million to -$0.093 million in September. The image below provides further details on this matter:

Source: Prospectus

Net Losses And Amount Invested In Bitcoin

The quarterly report released for the three months ended September 30, 2018, was a bit better than that reported for the same quarter in 2017. The company did not release any revenue, but the net losses were not that significant. The company lost $0.224 million, which is better than the figure reported in 2017, equal to $10.95 million. The image below provides further details on this matter:

Source: Prospectus

Investors should not follow BTCS’ stock price to follow the bitcoin price because as of October 11, 2018, the company reported only $0.02 million invested in bitcoin. The image below provides further details:

Source: 10-K

Negative Cash Flow From Operations

The loss in CFO is large for the nine months ended September 30, 2018. The company reported CFO of -$0.298 million, which is a bit better than the figure reported in 2017. With that, it represents a lot of money for a company that reports $0.002 million in cash. With this in mind, shareholders should be very careful. BTCS does not seem to have cash, so it will intend to sell shares or convertible securities soon. If this happens, the share price should decline even more. The image below provides the cash flow statement:

Source: Prospectus

The Company Seems Overvalued

Using the information provided by the exchange, there are approximately 372 million shares outstanding. As of November 26, 2018, the share price equals $7.44 million. The image below provides further details:

Source: OTC Markets

The market capitalization of BTCS should not be $7.44 million. Firstly, as per the last quarterly report, the company’s equity value is worth less than zero. In addition, the total amount of cash is equal to $2,074, and the total amount of investments in digital currencies equals $21,783. With this in mind, the sum of cash and digital currencies equals $23,857, which divided by 372 million results in a value of less than $0.00007.

Taking into account the massive destruction of cash of BTCS in the last quarter, the market seems to be too kind with the management. The share price should trade lower. Investors should understand that the company mismanaged its assets, which were equal to more than $3 million in 2015-2016. As of today, nothing indicates that the assets could increase, so the current overvaluation does not seem justified.

Source: Ycharts – Asset Destruction

With this in mind, the share price should be closer to its cash in digital currencies per share, less than $0.00007. The price does not seem to be that low since investors seem to be having difficulties to short-sell. The trading exchange notes that there are 35.556 shares shorted, which seem a small amount. The image below provides further details:

Source: Otc Markets – Short Interest

Conclusion: This Is Not Bitcoin

On many investment sites, information about BTCS Inc. is accompanied by news about bitcoin. In addition, the company’s name is also confusing as BTC is the ticker used for bitcoin. The images below provide further details on this matter:

Source: Seeking Alpha

Source: Seeking Alpha – Bitcoin

These features are not ideal. Investors may buy BTCS believing that its stock price may follow the price of bitcoin, which is wrong. The total amount of cash in hand and money invested in bitcoin are quite small. In this case, the issuance of new shares and the total amount of shares outstanding are what investors should study to understand future price dynamics.

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.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.





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