Description

Cryptocurrencies have dominated retail headlines over the last few months with the surge in price in the last week creating an even stronger backdrop for the promotion of bitcoin dreams. As seen in the consistent 50-130% premium for GBTC since April, conventional momentum junkie day traders are desperate to join the party but struggling to direct their non bitcoin exchange accounts to a get rich quick vehicle. Even potential first degree murderer John Mcafee’s delisted outfit MGTI has been given a new lease on life through a shift to a bitcoin theme. There is no shortage of opinions over the future of cryptocurrencies, whether they serve a functional purpose for society and how to value them. In my opinion, these discussions can be intellectually stimulating but are ultimately irrelevant as like the weed stocks there may have been a real story but these companies are selling stock not bitcoin/weed.

One thing is for certain though, when new technologies or manias develop, there will always be people to exploit the craziness and separate enthusiasts from their cash. First Bitcoin Capital Corp (BITCF) is the latest example of a company capitalizing on the excitement of cryptocurrency believers. For years just another gold scam languishing in Vancouver stock, BITCF has shifted from defrauding those chasing the dream of wild riches in gold to digital currency.

BITCF spent most of the last couple years languishing in sub penny land and as recently as February traded for $.03. With Bitcoin going mainstream in March of 2017 it caught the attention of cryptocurrency fan boys who took it for a ride from $0.05 to $0.85 in just over a month. The enthusiasm died down for a few months until volume returned on August 7^th, when it began a colossal run from a consolidation in the 30c range of nearly 1000% to $3.00 yesterday over 6 trading days. With the market capitalization reaching 900M at the zenith and representing 5% of all otc exchange dollar volume (with another 3% in a 2nd attractive short BTCS), OTC Markets finally stepped in and gave placed a caveat emptor warning on it. As is standard, a caveat emptor warning caused shares to gap down hard and tank 50% in the morning and close down 38% today to $1.67. However, with the stock still 370% higher than where it traded on the 7^th and worth 500M there is substantial short term downside remaining with considerly less risk. I believe ZENO from April holds the best comparison of the aftermath of a volume heavy parabolic blowoff once the otc exchange comes in with a caveat emptor, killing the momentum and putting an end to the illegal promotions.

If you have access to a borrow, shorting BITCF is a trade that stands to make 50-80% likely within a few weeks. Although the stock is hard to locate, borrow costs remain reasonable enough for now (35%) at some brokers like IB, but there is a pretty high risk the increased demand for shares will revalue the rate even higher (it was showing around 3% as recently as friday). I would assume 100% is where it will end up but with the IRR likely to be 500-1000% that is fine. One can expect trading dynamic risks similar to the weed bubble stocks earlier this year; but I believe this resembles more the February end of the weed bubble phase rather than the October one that had multiple waves of demand rather than one final huge surge. CNBX (reaching a similar 700M market cap over a 6 day move) and OWCP (a similar 2 wave move from sub 10c to 3) were the Febuary vintage that offer the closest comparison on a technical basis.

The statement put out by BITCF after hours Monday says it all likely under pressure from BCSC as they desperately tried to avoid the caveat emptor from otcmarkets.

https://www.otcmarkets.com/stock/BITCF/news/First-Bitcoin-Capital-Corp-Comments-on-Over-Exuberant-Demand-for-its-OTC-Common-Shares?id=167205&b=y

Some Background For Fun

Just four years ago, BITCF traded as “Grand Pacaraima Gold Corp”. Like many micro-cap stocks trading based in Vancouver, Grand Pacaraima was unsuccessfully mining for gold and burning stockholder equity in the process. Grand Pacaraima had originally been founded in the state of Nevada in 1989, then moved to Oregon in 2005, before being reincorporated in British Colombia in February of 2006. It was also briefly incorporated in the UK. Years of “attempting to develop” gold mines in Venezuela yielded no fruit for the Company. For a hot second in 2013 it appeared that Grand Pacaraima was going to pivot to the oil & gas industry (another space where profits can continually be kicked down the road while management “explores”) and the Company was going to change its name to “Embassy Oil”. But someone at Grand Pacaraima made a remarkably precedent bet that cryptocurrencies would be more valuable than oil. In December of 2013 Grand Pacaraima changed its name to First Bitcoin Capital Corp and began trading under the ticker BITCF.

BITCF is attempting to be anything and everything in the cryptocurrency space. They appear to be developing a Bitcoin exchange, new cryptocurrencies with buzzword-laced names like “Teslacoin” and “Weedcoin”, as well as ecommerce and general crypto-enthusiasts websites. They also own www.strain.ID, which has some great up-close pictures of various cannabis strains. In July 2017 they purchased a “closed-end crypto-exchange traded fund” known as “AlphaBIT”. It is hard to tell what they paid for this asset since they acquired it with their “primary wallet”. BITCF hopes to register AlphaBIT with the SEC so it may trade on traditional stock exchanges.

As of March 31, 2017, the Company had $5,887 in cash and $190,534 of stockholder equity on the books (no, those aren’t in thousands). The long term assets on the balance sheet are held at a cost of $365,887. Now you may be thinking, “wait are those assets Bitcoins that were purchased years ago at helping to justify why the price has gone up in the same range as bitcoin in the past few years”? Nope. Those assets consist of “Kilocoins”, of which BTICF had 1 billion of as of March 31, 2017. According to coinmarketcap.com, Kilocoins trade at approximately $0.000456, making BITCF’s portfolio worth $456,000. The highest they ever traded at was $0.005765 for a value of $5.8M to BITCF.

For what it’s worth, BITCF generated $22,763 of revenues in the latest quarter, a slight decline from the quarter ended December 31, 2016. Total operating gains were $7,333 during the quarter.

Other standard red flags:

·       The Company files late chronically, despite only needing to meet OTC reporting requirements

·       Quarterly reports have incorrect dates on certain schedules

·       Going concern statement

·       The company allows its shares to be mined, just like Bitcoin…I don’t know what that means exactly but I’m pretty sure it’ll lead to dilution

·       It’s based in Vancouver

Risks

High borrow costs and buyins (it doesn’t appear so hard to borrow this is a big concern at the moment though) on a more stubborn unwind then anticipated make the trade harder to extract value from than expected.

Bitcoin goes up at a pace and scale from here that energizes a new fresh wave of sentiment overwhelming the damage done from Monday’s technical and regulatory factors leading to a new leg up. There are not too many viable otc Bitcoin plays so money would likely reflow back to BITCF rather than finding a new shell.

The SEC actually approves their proposed ETF (seems unlikely given they have no board members with real capital markets experience or connections).

Elon Musk pumps Teslacoins for fun on Twitter.

Catalyst

Caveat Emptor Status

Bagholder/Momentum blowoff unwind