Real talk: Most of your blockchain deals are bullshit… but not all

I had a call today from one of our new (rather, renewed) client companies, in Roger Forde, CEO of Calyx Bio-Ventures.

The call, which I’m paraphrasing, went something like this:

Forde: Man, what do I have to do to get people interested in my stock?

Me: Uh, you’re up a four-bagger in the last month. People are interested in your stock.

Forde: I know, but it dropped from $0.21 to $0.195 today. I see other things like [company name omitted] that have gone up ten times, on bullshit news.

Me: Roger… you’re a four bagger. You’re a twenty-bagger from a year ago.

Forde: Yeah, but what we have planned is real, it’s not the pie in the sky bullshit I’m seeing floating around.

Me: …Roger.

Forde: Yes.

Me: You’re up more in the last month than HIVE is.

This is today’s Venture scene. Companies that are up from $0.015 a year ago to $0.20 today are complaining that they’re not getting enough love. That the other guys are getting more when they shouldn’t. That – trust me – this one is more real than that one.

Roger is a great dude, but he watches his stock like a hawk because he’s living and dying on short term feedback.

He’s not alone. Look at the stock charts of just about any company in the blockchain space right now and it’s clear, to me anyway, that people are no longer focusing on legitimacy, they’re chasing highs. Whatever is hot today goes up, and the money going into it is coming from other things that were hot yesterday. The new money is going into private placements. The big money is daytrading, and daytrading is an evil mistress who will steal your furniture while you’re at work.

For Roger’s CYX stock to move to $0.30, it needs to fight in that sector-wide battle royale and prevail, but doing so for one day and petering out the next is no big win. That’s just circulating wealth, not making it. The fight needs to be over weeks and months and years, as the weed industry’s fight was, and as lithium’s sector run was, and cobalt’s and so on.

Today was a busy day for me. I have been on the phone with so many new blockchain companies that it’s becoming hard to tell them apart, but for the fact that a handful of them are doing real business.

Another differentiator: The few who have real blockchain experience.

Back in 2014, when every shitty mining shell was strapping on the marijuana rocket and hoping it would take them somewhere with a soft landing, two things quickly became apparent.

  1. Two thirds of the deals were bullshit
  2. Investors didn’t give a damn if where they put their money had long term potential or not because BUD.V (remember that one?) will go from $0.10 to $0.15 in an hour.

And they didn’t care about legitimacy when lithium was the madhouse craze, and they don’t today when looking at blockchain deals.

Does HIVE Blockchain’s (HIVE.V) revenue potential warrant the $750 million market cap it’s currently rolling with? Does sticking blockchain terminology into MOGO Financial’s (MOGO.T) business model justify a doubling of its market cap in weeks? Does restaurant payment app developer Glance Technologies (GET.C) suddenly have ten times more real value in November than it had in August, now that it has started talking about blockchain tech?

I can’t say the answer to any of those questions is no, because it’s literally not possible to accurately assess the value of any company in the blockchain space right now other than by their market cap as a reflector of market sentiment. We don’t know where blockchain will land, how the tech will bring revenue, what industries it will turn upside down, which players will dominate and which will peter out. We can listen to a lot of pitches, and we may make a bunch of money tomorrow on the back of those, but the real business, the real revenue making business, that’s not going to reveal itself for a year or three, as it did with cannabis.

In the early days of the weed rush, I had little positive to say about Tweed, now Canopy Growth Corp (WEED.T), and they deserved the scorn because they bounced from flop to failure. But they also raised more money than anyone else and bought their way out of trouble, and acquired others who knew their stuff and built partnerships and, now, they have the multi-billion dollar market cap while several market darling deals that were in my 2014 top 5 would eventually become worth less than my car.

And my car isn’t that hot.

So where does this leave us on trying to figure out how to make money in the current blockchain market today?

The first thing is, quit caring about what’s up today. Honestly, I see the green and red figures too, and anything hot today is sold off tomorrow to buy the thing that is hot tomorrow. There’s a lot of chart chasing going on, and that’s a natural thing when NOBODY KNOWS WHAT ANY COMPANY DOES. When market dollars stay in a given company, it’s share price will rocket, but when it moves on a 10% rise to the next deal, thereby causing a 10% drop, the daily ups and downs become meaningless.

More important is to look at trends over time, which is impossible to do when we haven’t had enough time to assess trends.

Look at Global Blockchain (BLOC.C) as an example. That thing went to $54 million in market cap on the back of literally no news, no business, no assets – just a few well connected entrepreneur types who promised they could find value for investors. You guys bought into that, and you were right to, at least until mid-month when it began to trail off.

I bought into HIVE on day one, and participated in earlier financings, because I knew the crew running that show would have it on fire – and they have. But there’s no way the money being earned in the Genesis mining facilities is worth the current market cap, not by itself. What HIVE has going for it is first mover advantage, a big name or three in the engine room, enough ability to raise capital that they’ll be able to Tweed themselves along and snap up anything that looks cheap and interesting, and when the sector swings, they’ll pivot with force and boss the table. The risk is low. But the business being done is still very hard to visualize as being 3/4 of a billion in worth.

There are players out there that are making real deals, and feature people who, when you talk to them, will tell you straight up “this is a bubble, and we need a Plan B, and here it is” rather than “This is a $3 trillion industry and if we get 2% of that…”

I like Leonovus (LTV.C), who have a business based around helping companies use the blockchain to keep track of things in their online storage setup, allowing less utilized files to be slapped anywhere from Phil in Accounting’s cellphone to the internal storage of the break room XBox, to the memory of the smart light bulbs in the mens room – instead of expensive, always available, around the clock, premium cloud storage, which costs companies millions. They’re doing real business and, though their stock went on a straight up run in October and fell off a bit since, it has found a nice level at its current share price, churned out a bit of daytrader money, and started to grow once more.

Also interesting, a company off the radar of many but which has all the tools to be HIVE II, including some folks who took part in that deal, and that’s Hashchain.

Hashchain (ticker in December to be KASH) is helmed by a genuinely affable tech nerd in Patrick Gray, who has been mining crypto currency literally in his garage for a while, after some mega exits from his previous tech startups. His aim is to build out crypto mining capacity at a furious tilt, using networks he already has to acquire the physical server capacity needed, in quick time. Once established across Canada and the US, his data centres will be used to finance what he sees as the real business in a long term sense, which will be software that has yet to be written for industries that have yet to understand they need it, and which will revolutionize how we do business. The mining will be important because it’s actual business with actual revenue, that the market understands. The after-mining will be important because it’ll be infinite upside – eventually.

Oh, and if you doubt they can handle things on the acquisition front, check the advisory board and the presence of one Dan Kriznic, who served as CEO of Invictus MD Strategies (IMH.V), which grew from zero to a $100m marijuana aggregator in a bit over a year, and was then CFO of what has become the $180 million Lithium-X (LIX.V), which he worked on with the Frank Giustra crowd, who founded the $750 million HIVE Blockchain deal.

Connective tissue – it’s a thing.

I got a call this morning from another blockchain deal that makes sense, this one in the developing world remittance game, in Cuba Ventures (CUV.V).

CUV is a company that has existed for some time now, having been started as a travel marketing firm and with a CEO who has founded, grown, and sold several big companies across the world in that same sector. But when blockchain emerged, they had a ready made use for it that makes a ton of sense, in setting up blockchain platform that will allow folks sending money to Cuba to do so using a blockchain-based mobile app called RevoluPay.

How much money is sent back to Cuba each year? Oh, only $3.4 billion. Western Union takes 20% of much of that cash. RevoluPay thinks 10% makes sense.

In effect, this is exactly what the decentralized cryptocurrencies were built for. Change your dollars, which are hard to transfer, to RevoluPay’s CCU coin, send the coin to Cuba, where it’s exchanged for Cuban currency with a much smaller commission paid. Meanwhile, Cuba Ventures owns 400+ Cuban travel websites, which provide them with 35 million visitors annually to sell RevoluPay to as a travel currency.

REAL BUSINESS.

eXeBlock (XBLK.C) is another real business, and one that has leapt into the public markets to great acceptance. eXeBlock is the play for people who understand how blockchain works, in that they’re building distributed apps (DAPPS) that will, when they’re completed, be usable for gaming, transferring real world currency to crypto and back, bringing crypto into usability for broad ecommerce. The kicker? They’re making those open source, so that whenever any other company creates a DAPP using their functionality, they’ll get a piece of the transaction.

You think blockchain is going to rule the world? This plan takes a chunk of that world for eXeBlock.

Compare them to Paypal, which made its bones facilitating eBay trades, and now takes a giant piece of all online commerce. Compare them to WordPress, which is free but makes a ton of money because it’s used on around a third of all the websites on the internet. Compare them to Stamps.com, which helps the clueless US Postal Service sell you stamps online and takes a piece of the sale for doing so.

eXeBlock will be there when any of those other blockchain companies monetizes, if their plans play out. And that upside? That’s some filthy upside.

There are others; Atlas Cloud Enterprises (AKE.C) is raising $14 million and will be unlikely to let that sit in its bank account for long. Fintech Select (FTEC.V) was up 30% today on the announcement of a patent application. Glance’s stock is on a charge so straight and hard that it could have been charted with a ruler. A promoter of note pitched me two companies today that basically do the same thing, both of which he swore will be blockchain darlings. 

Oh, and remember Roger and Calyx Bio-Ventures?

So he’s buying a BC-based company that has set up a warehouse full of crypto-mining rigs. Due diligence being done. Money is already raised. Not a huge HIVE-like deal, but a consistent earner for a company with a tiny burn, and a facility that can be ramped up by multiples quickly. I know Roger’s team has recently traveled to China to source more GPUs. If the deal goes definitive, there’ll be a lot more detail to go through.

Bottom line: The tactics that were smart in the evolution of the weed industry are still smart today. Put your head on a swivel, don’t obsess over ups and downs on the day, Back real teams doing real business. Don’t chase. Take your profits when they’re real. Leave your profits in when your investment is doing as promised. Don’t get ‘sold’ by wild promises. Watch for missed milestones and hit targets. And, most of all – don’t try to grab a hold of everything.

— Chris Parry

FULL DISCLOSURE: Leonovus, Calyx, Hashchain, eXeBlock, and Cuba Ventures are Equity.Guru marketing clients. The author holds stock in those companies, as well as HIVE.  
 
NB: Pursuant to a resolution passed by the directors dated Nov. 27, 2017, Calyx Bio-Ventures Inc. changed its name to Calyx Ventures Inc. effective as at Feb. 5, 2018. The ticker symbol CYX is unchanged.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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