Bitcoin Group (ASX:BCG), an Australian startup engaged in the mining of bitcoins, is slated to IPO on the Australian Securities Exchange (ASX) on November 11.
It would become the first crypto industry company to go public through the IPO process. All others have thus far taken the easier back-door approach of reverse mergers with publicly traded shell companies. BTCS (formerly Bitcoin Shop), now engaged primarily in mining, entered via TouchIT Technologies Inc. Vogogo, through Southtech Capital Corporation, and DigitalBTC, also engaged in mining, entered via Macro Energy Ltd.
Bitcoin Group is targeting November 11 for listing, approximately one year after the originally intended date. The Australian Securities and Investments Commission (ASIC) had placed stop orders on earlier IPO requests for September 2 and October 2. The exact reasons for the stop orders are unclear. ASIC issues such orders if a disclosure statement contains “a misleading or deceptive statement, an omission of information required to be provided under the legislation, or a new circumstance has arisen since the disclosure document was lodged.”
CEO Sam Lee was quoted by Sydney Morning Herald as stating: “ASIC’s role to protect Australian investors means they need to understand our unique business model. We appreciate the patience ASIC have taken to understand what we do, and thank their co-operation in helping ensure our prospectus accurately reflects the current and future opportunity of Bitcoin Group.”
The company claims to currently power 6.2 PH/s (1 PH, or petahash, equals 10^15 hashes), or 1.7%, of the total bitcoin mining hash rate. It claims to mine 62 bitcoins per day, bringing in A$22,910 based on a bitcoin price of $A370 ($259). Revenue from mined bitcoin this year until June was A$1.73 million, but yielded an after-tax profit of only A$10,000- a margin of 0.6%.
Revenues for the fiscal year are projected to range between A$20 million and A$63.3 million, based on a bitcoin price range of A$250 to A$550.
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It plans to issue 100 million new shares, at A$0.20 each, raising A$20 million ($14 million) through the offering. Combined with the existing 64,770,930 shares, the total market capitalization would be A$32.9 million.
90% of the capital raised (A$18 million) will go towards the purchase of new mining hardware.
Investing in the mining economy
While there will much buzz as the crypto industry achieves another milestone, investors should understand the nature of the business before jumping in. The company’s entire business is effectively in bitcoin mining. As such, its profits- and by extension, its share price- will be highly sensitive to the price of bitcoin. It is analogous to the valuation of companies engaged in the mining of physical materials, where price changes in the underlying commodity can have huge effects on profit margin. The past year has seen the share prices of mining stocks tank by 75% or more.
At the same time, those bullish on the bitcoin price would realize huge returns should their predictions prove correct. It can also offer a convenient opportunity to gain exposure to the mining economy without having to deal with physical hardware or unregulated companies offering mining contracts. However, recall that the bitcoin reward will be halving in around one year, and again four years later, with corresponding effects on mining revenue. Mining rewards will eventually approach zero and disappear altogether, calling into question the future business model of bitcoin mining, and perhaps by extension, Bitcoin itself.
Unless the circulation cap of 21 million is changed by consensus- a suggestion that undermines Bitcoin’s entire ideology of constrained supply- miners will have only the miniscule transaction fees to rely on, unless these are changed as well.