It’s hard to pinpoint any variety of bellwether company for the blockchain space, because those particular markets defy any attempt at classification. There are experimental blockchain companies working with ERC20 ethereum-based clones, trying to find a way to squeeze a dollar or two out of smart contracts, and there are the outliers, and the disparate (and desperate) ancillary companies in the blockchain space, trying to leverage blockchain’s curious architecture as a potential revenue source. Then there are the miners, using massive hydroelectric and fossil fuel output to pull digital money from complex math.
In looking through these companies, we’re going to discover some similarities and from these get a general sense of how the crypto and blockchain sectors are faring nearly a year after the end of the disastrous downturn in the space.
Netcents (NC.C)
Netcents is a fintech company that allows both clients and merchants to manage electronic payments through a variety of devices, such as android phones and computers, and currencies, with their latest addition being Bitcoin Cash. The company has developed its own processing software and holds IP in the development of its technology. They also have their own exchange.
The fintech space, and especially those dealing in cryptocurrency, is saturated. Some are doing better and others are doing worse, and Netcents is basically right in the middle as the average performer in 2019. They’re still losing money, which is going to be a common theme in today’s cryptocurrency and blockchain markets, but their annual losses for this year are nearly half of what they were for 2018.
They have $2,214,744 in operating cash, which is a plus, but have had to take on some debt (and potentially unserviceable warrants) to acquire it.
Their present price range suggests they’re going to be able to accomplish their first milestone on that chart later this month, but they’re going to need some quick thinking to climb out of the hole represented by those other warrants on the list.
But they might have it. They, like lots of other fintech companies, are trying to find a way around crypto’s inherent scaleability problem by partnering with institutions like banks and lenders to provide temporary funds. Normally, a company like this needs to generate a secondary fund out of their own pockets to cover transactions while the block closes, which can get expensive.
“Working with multiple institutional partners to provide managed funds allows us to process unlimited transactions with fewer capital restraints. We are now able to continue to scale our processing without the large floats that were previously required — it’s a game changer,” said Clayton Moore, founder and chief executive officer of NetCents Technology.
Hive Blockchain (HIVE.V)
Unlike Netcents above, Hive’s story reads like a sweeping epic, full of high points and downturns, and including betrayal worthy of George R.R. Martin. Our sweeping tale begins in 2017, when Hive was the darling of the crypto-mining space before the ass fell off the blockchain sector following Bitcoin’s precipitous crash in 2018.
“We weathered a challenging period for cryptocurrency and blockchain companies as the value of Bitcoin and Ethereum underwent tremendous erosion of value causing a massive fall in the cost of computing equipment. However, we opportunistically added Bitcoin capacity at attractive financial terms,” said Frank Holmes, interim executive chairman of HIVE.
When they added more ASIC rigs to their already expensive holdings last year it looked like they were doubling-down on a bad bet, hoping that Bitcoin would go back up. When it did, to continue the blackjack analogy, it looked like they got lucky on the river and stand to pull in some serious cash when the cards go down.
But it hasn’t started yet.
They need to stop the bleeding first.
On April 19, the company was hauled onto the carpet by their largest shareholder, Genesis Mining, which owned %26.3 of the company’s shares, in an attempt to remove and replace Hive’s existing board members. The meeting happened as a reaction to an earlier formal notice from Hive because Genesis had breached their master service agreement, and then tried to force Hive’s board to remove Frank Holmes as interim chairman and CEO. They failed.
Here’s Holmes,
“We are frustrated that Genesis unilaterally gave notice of increased costs in Sweden and services under the MSA have not been ‘performed in a professional and workmanlike manner in accordance with the highest industry standards’ as required by the MSA. It is disappointing that Genesis has reacted by attempting to eliminate the dispute by taking control of the Hive board but I am confident that Hive shareholders will understand that the meeting requisition is a blatant attempt to take control of Hive for Genesis’s sole benefit to the detriment of all other shareholders.”
Reading between the lines involves listening to the adjectives: “frustrated” and “disappointing” downplay the probable panic and anger at almost having your company swept out from underneath you by a partner. The available information doesn’t tell us what happened next, except for this little tidbit from their MD&A:
The agreement settled outstanding issues associated with the Sweden data centre and both parties agreed to mutually release each other from all claims arising from the Master Services Agreement and other related agreements, and discontinue any legal proceedings and withdraw any demands that were made.
Then they replaced Genesis with another company to manage their Swedish operations.
For the year they managed revenues of $31.8 million, which is an 143% increase over 2018, with a gross mining margin of $7 million. They mined 82,000 ETH, and 1,751 Bitcoin, and incurred a loss of $137.8 million for the year.
They’ll be one to watch in 2020, especially during and shortly after the halving.
Bigg Digital Assets (BIGG.V)
Pivoting briefly away from our coverage of palace coups and bitcoin miners, we have Bigg Digital Assets, formerly known as Big Blockchain Intelligence.
BIGG is a global blockchain search and analytics company in the risk management business. Their mission is to bring cryptocurrency to mainstream acceptance by providing trust and risk evaluation through their platforms. They utilize machine learning and algorithms to analyze the chain of custody along the blockchain, tracking resources end to end. Their latest news involves the company signing a contract with an intentionally undisclosed government agency in the United States to better root out bad actors operating in the crypto-space.
They’ve developed proprietary software for this purpose called QLUE, or an application program that aids law enforcement, anti-money laundering and certified financial examiner officers to fight against financial crimes and terrorism involving Bitcoin.
In June, they had $8 million cash, which they used to develop Bitrank.
Bitrank is a wallet risk scoring system that uses search and analytics systems to determine safety level of a Bitcoin transaction by ranking the wallet funds involved in prior transactions on the blockchain. Each entity on the blockchain comes with a certain number attached, and this program follows it back to its original appearance and compares each data entry point (where it bought or sold Bitcoin) to numbers suspected to be connected to organized crime. And it ranks them.
As Bitcoin scales and the price rises, especially after the halving, there is going to be a big market for software like BIGGs. People are going to want this kind of transparency, because nobody wants to secretly be funding ISIS or other bad actors.
If there’s a weakness in this company (and there is always a weakness) then it’s the company’s revenue stream. They’re assets are vastly outstripped by their liabilities, and they’re losing money. That’s not necessarily unexpected, nor is it anything to panic over—at least not right now. This company is two years out of their RTO with Acana and it takes awhile for a new company to get profitable, but the revenues here are under $50K while their liabilities calculate a little over a million dollars.
And it shows in the chart. Some of that, however, should probably be laid at the feet of the overall blockchain market, which hasn’t yet caught on that Bitcoin’s on a run and the winter’s effectively over.
Hopefully, at least for them, these government contracts open doors for them in the future.
Graph Blockchain (GBLC.C)
“They’re big in Korea” should never be a tagline for a company looking to draw revenues from the North American market. If Bigg Digital is the closest company blockchain has to being a success story, Graph is an example of how this fickle industry can quickly move in the opposite direction.
But not all of the blame lies with the forces of market-sentiment. Some firmly has to be laid at the feet of this company for their poor offerings. For example—their lack of an easily defined product.
This is from their MD&A:
Graph Blockchain Inc is a private blockchain technology company that develops, markets and implements high performance private blockchain database management solutions. The company’s solution provides for a unique and more streamlined way of filtering through blockchain based data, providing users with querying capabilities, meta data management, and advanced analytics.
Even after decoding press-release speak into usable English, that’s damn vague and general. They’re a blockchain company that filters and streamlines data, and provides information about that data to end users.
These guys were once a marketing client of our parent site, Equity.Guru, and we wrote fairly frequently about them. During their onboarding interview shortly after their RTO with Regtech, Chris Parry asked then CEO Peter Kim why he kept the word blockchain in the name given the general malaise infecting the sector at the time and how other companies were taking the word out of their name. He didn’t have an answer that could be considered credible; it was necessary, he wanted to impart, and leave it at that.
Then they proceeded to seek out big name clients in Korea, like LG and Samsung, without actually detailing what they were doing for them. Now for the past few months, they’ve been desperately trying to tie their fortunes to esports, and get involved in Seoul, Korea’s smart-city initiative, and anything else that will let them work for revenue.
And in the interests of full disclosure, the first line of this piece is slightly deceptive: they’re not big in Korea either.
Blockchain Foundry (BCFN.C)
Blockchain Foundry is another one of those companies that make you wonder where exactly they make their revenues. They operate in two capacities: blockchain services, as a consultancy and contract development firm, and from development of their own products. They haven’t officially launched any products right now, so all of their revenue comes from consulting.
But unlike Graph Blockchain above, what BCFN has done is develop their own protocol, and attached to their own coin. (Or at least a coin co-created by one of the board members of the company.) That coin is Syscoin, and it’s in its fourth iteration right now, which means that the company has been working to develop it and its various functions. For example, it’s an ERC20 based coin, which means that it connects to the ethereum blockchain. This, we’ll call it an interoperability bridge (because that’s its name), allows people to take advantage of ethereum’s ability to create smart contracts and decentralized applications at a rate that’s much cheaper than ethereum itself does.
From a pure geek standpoint, that’s awesome and there’s room for definite functionality in the future. But how far in the future? BCFN needs money now. How bad do they need money? So bad that they’re printing shares to pay their employees in lieu of actual payment.
Here’s their chart:
As of June, they had $67,795 in cash, and that’s probably depleted by now. Without an actual product and without any new contracts coming down the pipe, it doesn’t look good for BCFN.
This has really been just a glimpse into what’s going on in the cryptocurrency and blockchain space. Some companies are thawing faster than others, and others are practically dead on the vine, but no company has avoided substantial damage from the lengthy crypto-winter. The next six months will determine which of these companies will thrive and which will die.
—Joseph Morton