On this day last year, bitcoin traded for $600 a coin. By Sept.1, this had risen to just shy of $5,000 and, as things stand, one bitcoin goes for about $4,300. Bitcoin has gotten popular enough the New York Stock Exchange has started an index to allow those interested to track the price, the NYSE Bitcoin Index (NYXBT, Financial).
Fueled by recent statements such by the International Monetary Fund’s Christine LaGarde that digital currencies could potentially replace banking as we know it, traders and investors are looking to pick up an exposure to bitcoin. Online wallet services like Coinbase are adding more than 1 million users to their base count monthly.
There is also a substantial portion of the market seeking exposure to bitcoin and other cryptocurrencies without having to buy and store the underlying asset. There is a knowledge gap associated with both of these processes and, due to the complexities of bitcoin and the blockchain, this knowledge gap will likely remain in place for some time.
This seeking of alternative exposures has translated to some real strength in the handful of publicly traded companies tied to the cryptocurrency space. Examples include Bitcoin Investment Trust (GBTC, Financial), which is the ETF-type asset set up by Grayscale, which is in turn owned by Barry Silbert and MGT Capital Investments Inc. (MGTI, Financial), a bitcoin mining entity headed up by cybersecurity legend John McAfee.
These companies offer the opportunity not just to pick up an exposure to crytpocurrencies, but to also pick up a shorter-term exposure to a company that is growing on an influx of speculative volume based purely on its connection to bitcoin and blockchain.
Another one just added its name to the list – BiOptix Inc. (BIOP, Financial).
Do not be fooled by the biotech name. BiOptix is, or more accurately was, a biotechnology company that specialized in veterinary medicine. As of today, however, it has been renamed Riot Blockchain with a reserved and pending ticker change to RIOT on the Nasdaq, and it has shifted its focus to bitcoin, blockchain and the cryptocurrency space in general.
As per the press release, the company's focus will be as a strategic investor and operator in the blockchain ecosystem with a particular focus on the bitcoin and Ethereum blockchains.
This mission statement has a couple of key implications for its attraction as both a near and long-term investment.
First, the model with which the company is approaching this space means there is a degree of diversification built into its shares. Riot Blockchain itself is going to be investing in a range of blockchain and cryptocurrency-based entities, meaning an investment in Riot is an exposure spread across various entities in the sector.
Second, the company is not solely focused on bitcoin, offering shareholders exposure to other subsectors of the cryptocurrency industry.
Ethereum, for example, is a cryptocurrency similar to bitcoin but built on a different blockchain – a blockchain that allows for interaction with what are called smart contracts. These smart contracts are the foundation of decentralized applications, which are in turn the foundation of the thousands of new companies popping up and carrying out initial coin offerings (ICOs).
When a company raises money through an ICO, it issues tokens in return for Ether. Ether is the token associated with the Ethereum blockchain, meaning that in order for people to participate in an ICO they need to interact with the Ethereum blockchain and buy Ether.
Why is this important?
As the ICO space continues to boom, Ethereum and Ether could rise further in popularity and value in line with ICO space expansion. With Riot seeking to allocate capital toward companies in the Ethereum space, Riot could benefit as well.
This is something just buying a bitcoin ETF does not offer.
So the company has pivoted, changed its name and, as a first step towards achieving its strategic goals, has taken a position in a cryptocurrency exchange called Coinsquare.
The exact terms of the deal have not yet been made public, but as reported in this Bloomberg piece, CEO Michael Beeghley said in a phone interview that Riot Blockchain is paying a "few million dollars for about a 12 percent interest in Coinsquare, and has warrants to increase its stake to 20 percent."
What is Coinsquare?
Coinsquare is a Canadian cryptocurrency exchange located in downtown Toronto. The exchange was built by a team of designers and developers with the goal of making public participation in cryptocurrency (i.e., buying and selling various forms of cryptocurrency) simple. Here is its platform.
It is built on the same technology that underpins the New York Stock Exchange, but is also proprietary to Coinsquare and has not lost a bit since its inception in 2015. This kind of security reassurance is something cryptocurrency traders seek as, when you hold coins in an online exchange like Coinsquare, you are essentially relinquishing your private keys, meaning somebody else is in charge of making sure nobody has access to your cryptocurrency balances.
In other words, security is paramount and Coinsquare has been able to establish a reputation for its strength in this arena.
Right now, the company has positioned itself as a sort of Canadian exchange for Canadians, and it has been successful in doing so, but there is a good chance it will expand to allow for a more global presence going forward.
Coinsquare is the first of what is planned to be a range of investments by Riot in cryptocurrency and blockchain-based companies. The next natural question is: who is going to be deciding which companies these are?
Management team
The CEO, as mentioned, is Beeghley. He is a corporate finance guy with previous experience at PWC and Ernst & Young and is also the founder and president of investment banking firm Applied Economics LLC.
The chief financial officer is Jeff McGonegal. He has over 40 years of experience as a CFO and in public accounting. He held CFO roles at PepperBall Technologies Inc. and Bactolac Pharmaceutical Inc. (BTCA, Financial) prior to his position at Riot Blockchain.
Edward Lee, director of business development, is the one that is going to be hunting for the opportunities in the space and he is a senior financial analyst with Applied Economics, the investment banking firm headed up by Beeghley.
Bringing all this together, then, we have an industry in which traders and investors are looking for allocations that offer them exposure to bitcoin and cryptocurrency without having to buy the underlying assets. We have a company that seeks to make investments in other companies in this space, offering investors an opportunity to buy shares in one company and simultaneously pick up an allocation to a diverse base of cryptocurrency and blockchain companies. Finally, a management team in place making the investment decisions, one with a wealth of experience leading and running public market companies – something many of the younger companies in the blockchain technology space do not have right now.
It is still a speculative sector and who will prove to be leaders in bitcoin and blockchain 10 years from no remains to be seen. With that said, however, and based on its strategy and the fact there are only a few Nasdaq-traded blockchain stocks available right now, Riot looks like it is in with a chance.
Disclosure: The author owns bitcoin.
