One month ago, the worst place to put your money was the cryptocurrency sector. Every crypto-stock on the TSX Venture was dropping 3-5% a day.
But what a turnaround in the last week:
The Market for these stocks hit crazy levels of panic—stocks were trading for less than the cash in their treasury. Now, conditions can stay like that for a long time, but in crypto-land, nothing is static and the stocks showed that last week:
Blockchain Intelligence Group (BIGG-TSXv), after hitting a high of $2.31 last December, hit a low of 38.5 cents earlier this month but bounced to 61 cents as of Friday.
The bounce happened during a period of when 28 million shares from a 75-cent financing came free trading–which I think is very bullish.
Over the last three months, you could be confident that these stocks would drop on each and every day that a tranche of cheap stock would come free-trading from a previous financing.
Earlier this month, when a tranche of 35-cent stock came free trading on DMG Blockchain (DMGI-TSXv), the stock dived to 43 cents. However, unlike the previous two times, it recovered sharply the next day to finish above 50 cents. It’s currently trading at 72 cents.
HIVE Blockchain (HIVE-TSXv), the bellwether crypto-stock of the TSX venture exchange, has had a nice bounce as well:
Last Friday it moved up 17 cents (12%) to close at $1.55
I have been watching HIVE like a hawk because the fourth (and last) block of cheap private-financed stock comes free-trading on May 15th. In previous weeks before a tranche comes free-trading, HIVE has always traded down on short-selling.
But not in the last week.
Other crypto-stocks have traded well, especially last Friday. Venzee Technologies (VENZ-TSXv) hit 58 cents after being as low as 35 cents. Neptune DASH Technologies (DASH-TSXv) soared 19% to close at 35.5 cents.
Dead-Cat Bounce or Something More?
It is obvious that sector trades in correlation to the price of Bitcoin, which had traded below $7000 USD for the first half of April but has appreciated more than 25% to close just below $9000 at time of writing.
Never mind that HIVE (which mines ethereum) should trade in correlation to the price of ether, and Neptune DASH (which owns DASH masternodes), should trade in correlation to the price of DASH. Most investor are treating crypto-stocks as trading proxies for bitcoin.
Therefore, forget fundamentals for now, (although all the companies listed above have revenues and plenty of cash in the bank). Is bitcoin going to go up or down in the next few weeks?
If bitcoin tanks again, I expect a wave of selling taking all these stocks back close to their all-time lows.
On the other hand, if bitcoin breaks $10,000, look out. Except for HIVE (market cap $477 million), all these companies have a market cap below $100 million and most days, are thinly traded. For example:
- DMG, market cap $42 million, trading volume of 535 thousand shares last Friday.
- BIGG, market cap $45 million, trading volume of 2.15 million shares.
- Neptune DASH, market cap $28 million, 586 thousand shares traded.
- Venzee, market cap $29 million, 263,099 shares.
Forget institutional money, five or six retail investors with a reasonably high net worth can move any of these stocks on any given day.
Conclusion
These are still incredibly young companies, all of them have been public for six months or less. Most investors don’t understand their lines of business or even what business they are in.
Except for HIVE, none have released any quarterly earnings report since they raised capital in late 2017 or early 2018.
Many of these companies are making great strides in their business plan, but there is no point in issuing news releases when the Market hates you.
As investor sentiment improves, and the next 2-3 quarterly financial statements come out, the Market will, I hope, start differentiating these businesses and stocks from just being Bitcoin proxies.
In my new subscriber service that launches next month, you can be sure to find reports on all these companies, including my exclusive interviews with the CEOs.
And of course, I’ll be telling you where I’m putting my capital to get the best capital gains. I’m very confident crypto and crypto stock investors can make a lot of money on this beaten-down, left-for-dead sector.
I love starting a newsletter at the bottom.
Ross
