For the last three years, I’ve sat down with the results of the Livewire Reader Survey in January to analyse the data. With over 2700 responses, this year’s generated four times as many responses as last year, and now marks it as the largest survey of active investors in Australia.
Once we’ve cleaned up the data and located the most-picked stocks, I like to take a look down the list to see what companies are not yet on my radar. Our contributors are often the first ones on the big new ideas (e.g. Cyan Investment Management on Afterpay, Foster Stockbroking on Updater, or Paragon Funds on Galaxy Resources), so we’re often among the first to hear about exciting new developments.
You can understand my surprise then, when the stock tied for 13th place with 25 tips, was one that was entirely new to me. For comparison, that put Digital X (ASX:DCC) above Commonwealth Bank and Woodside Petroleum in the number of tips.
What is Digital X then, and why has it caught people’s attention? In a word: Bitcoin.
In keeping with the old saying, Digital X is ‘selling pickaxes to miners’. They provide a corporate advisory for companies wishing to undertake an ICO (Initial Coin Offering) and a broader blockchain consultancy service. The company also announced recently that it would return to acting as a market maker on approved cryptocurrency exchanges.
Of interest to crypto bulls, the company held 489.68 Bitcoin, 430.83 Ether, with a current combined value of over US$7.5M (~AU$10M) at the time of writing.
The company’s fully diluted market cap, assuming the conversion of the 44 outstanding convertible notes, stands at AU$195M. So, clearly the market is expecting significant growth in the operating business, which generated just $232,000 (in advisory fees) in the September quarter. Given the significant number of transactions the company was involved in during the December quarter, it will be interesting to see how much this has grown in three months.
The company has a surprisingly long history on the ASX, with nearly four years of trading history since it listed via reverse takeover in 2014. Upon listing in 2014, it was initially marketed as a Bitcoin mining and trading operation.
Through 2015, attention slowly turned towards blockchain-based consumer fintech products. The company described its AirPocket product as “The “Uber” of global remittance”. Following the high-profile hacks of a number of Bitcoin exchanges and a significant drop in revenue, the trading and market-making operations took a back-seat to its consumer technology.
After a seemingly difficult split between the company and its founders in late 2016, the first half of 2017 saw continued focus on its consumer payments technology. Later in the year, focus appeared to shift again towards the ICO market and its consultancy business.
Following the exit of the co-founders in late 2016, a new leadership team was announced, consisting of Australian-based CEO/Managing Director Leigh Travers and U.S-based President Neel Krishnan.
Leigh Travers is a Director of the Australia Digital Commerce Association (ADCA), an industry body for Blockchain in Australia. Until 2014 he was an Investment Advisor at Euroz Securities, when he left to become a proprietary cryptocurrency trader for Digital X. Prior to working at Euroz, Travers completed a Bachelor of Commerce and Communications at the University of Western Australia.
Neel Krishnan is a former economist, researcher and consultant for the Federal Reserve Bank of New York. After leaving The Fed, Krishnan worked with hedge funds in the US as a Quant Analyst and software developer. Krishnan joined Digital X in 2014 as a Senior Developer and spent two years leading the company’s product development before becoming the President.
The company’s largest shareholder is Blockchain Global Ltd, which holds 21.23% of outstanding shares. The company’s founder and CEO, Sam Lee, is also a Non-Executive Director of Digital X.
Blockchain Global Ltd offer ICO advisory services, Blockchain consulting services, and Blockchain development services.
Blockchain Global Ltd was formerly known as Bitcoin Group, which attempted to list on the ASX in 2016 but the IPO was ultimately withdrawn by the company.
The rise in Digital X seems to be a direct result of increased interest in Bitcoin and cryptocurrencies at the end of last year. The price of Digital X began to get moving around early October, and then went parabolic in early December, before pulling back a bit since Christmas – exactly the same thing could be said of Bitcoin (or Ether). The price ran up 775% in calendar year 2017, not quite matching the performance of Bitcoin, but multiples more than anything in the ASX200.
Whatever your view on Bitcoin, Blockchain, and cryptocurrencies, it’s encouraging to see Australian businesses attempting to solve major problems. As exciting as new investment ideas can be, it’s always important to turn a critical eye to any potential investments to ensure you know the full story.
Disclaimer: Neither the author nor Livewire Markets makes any recommendations regarding the companies mentioned in this article. Investors should receive professional investment advice from a licenced advisor before making any investment decisions. The author does not hold any positions in DCC and does not intend to initiate any.
Patrick was one of Livewire’s first employees, joining in 2015 after nearly a decade working in insurance, superannuation, and retail banking. He is passionate about investing, with a particular interest in Australian small-caps.
Why was Bitcoin Group's 2016 IPO withdrawn? Legal issue? Regulatory clarity?
Adam, the company issued a detailed statement (many thousands of words) at the time, but their summary of the issue was: "The key reason for the withdrawal of the offer is due to the requirement of the ASX, that Bitcoin Group procure a working capital report from an independent accounting firm, a report not specifically required for a listing on the ASX. In preparing the working capital report, Grant Thornton, the independent accountant was required to factor in the reduction of newly minted bitcoins released on the occurrence of block halving in July 2016, without regard to the expected increase in bitcoin price."
Wasn't impressed when Bitcoin Group tried to claim that Malcolm Turnbull was a shareholder (he wasn't) when bookbuilding the IPO