For investors looking to bet on the coming adoption of digital assets, there might be a stock for that: Shares of the cryptocurrency retail broker Voyager Digital are outperforming this year, with triple the year-to-date returns of bitcoin.
Crypto markets, just 11 years old, are evolving fast, with more than 5,500 digital-tokens now in existence, many of them trotted out by entrepreneurs with scant revenue to speak of, few proven use cases and minimal supervision from government regulators.
So there's something to be said for those crypto firms that embrace the scrutiny that comes with being a public company – from investors and regulators alike.
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Voyager Digital is one such company, a New York-based broker that aims to help individual investors buy and trade cryptocurrencies. Shares in the company, which went public in February 2019 through a reverse merger, are listed on the Canadian Securities Exchange and traded in over-the-counter markets.
On Monday, its stock price tumbled 18% to 47 cents, the biggest drop in nearly three months, after Voyager announced it had raised $2.2 million through a dilutive sale of new equity via a private placement led by investors including Susquehanna, Streamlined Ventures and the CNBC personalities Jon and Pete Najarian.
The money will be used partly to fund an expansion of the company's business beyond its core U.S. market into Canada and eventually Europe, CEO Steve Ehrlich told First Mover in a phone interview.
Voyager is a penny stock, so volatility is a part of the bargain. And indeed, the shares had shot up last week, so even after Monday's sell-off, they're still double where they started out 2020.
Crypto stocks straddle cutting-edge digital-asset technology and traditional Wall Street markets. Benefits for public companies include easier capital raising and potentially free publicity with every headline that crosses. Trade-offs include stricter reporting requirements and the need to stomach wide swings in the ever-visible share price.
It's a very different model from many of the crypto industry's largest companies, mostly private concerns like the exchanges Binance and Coinbase and the mining computer maker Bitmain Technologies. Disclosures on the companies' underlying financial health are harder to find, if available at all.
"Everything we do is scrutinized by auditors, and every decision we make as a board and as a company, we know is something that is potentially disclosable," Ehrlich said. "A private company has a lot more wiggle room and can do things that never get shared."
Here's how glaring that disclosure can be: Last month, Voyager reported an operating loss of $1.78 million during the three months ended March 31, narrower than the $2.8 million deficit during the same period a year earlier.
And its cash dwindled to $1.7 million from $3.1 million in June 2019, even after private-placement capital increases totaling more than $3 million.
Another disclosure that might raise eyebrows: According to a May 20 regulatory filing, Voyager in recent months got two loans totaling more than $1 million from a U.S. government coronavirus-related relief fund, the Paycheck Protection Program.
Many private companies doubtless took the money without the need for immediate disclosure; some $511 billion of the loans were approved as of last week. But for public companies, accepting the financing meant also embracing the risk of any stigma or scrutiny that might come with the revelation.
"We felt comfortable upon conversations with counsel that taking the money was a fair step for us," Ehrlich said. The financing is helping to pay for three or four new hires, he said.
It goes without saying Voyager is still an early startup company, focused on longer-term trends in the crypto industry. There's been a lot of talk recently about big hedge funds and money managers nosing into the cryptocurrency market, and Ehrlich says he believes that serving retail investors will become a major growth market in its own right.
Ehrlich is a former executive of the online stock broker E*Trade, which helped to shake up the brokerage industry in the 2000s with its electronic trading tools and expensive Super Bowl commercials. So he's comfortable with the idea that losses in the single-digit millions of dollars might someday turn to profits in the billions.
Many companies tread that road to profitability in private before going public with an initial public offering. Companies have raised more than $23 billion in IPOs this year on the New York Stock Exchange and Nasdaq, including Warner Music Group, which raised more than $1.9 billion.
It puts Voyager's $29.8 million market capitalization into context. Not exactly a unicorn.
But at least the valuation is public and based on the collective judgment of markets. Ehrlich says that in some ways it's easier for the company to raise new money – such as in Monday's private placement – because he can offer new investors the chance to get in at a valuation predicated on a market-determined share price.
"I always have questions when I see valuations on private companies," Ehrlich said. Meanwhile, "I have a currency that is quite attractive for people in looking to do not just organic growth but for mergers and acquisitions."
Ehrlich said that, based on internal projections, his company has enough cash on hand to make it through 2021, when, also according to projections, the firm will turn cash-flow positive.
In the meantime, he says, some of the company's customers now jump on its periodic business-update conference calls and webcasts. It might be their way of assuring themselves that their cryptocurrencies are safe with Voyager.
There's no assurance, of course, that Voyager will eventually grow out of its penny-stock status – or that its stock price will continue to outperform bitcoin.
But at least investors and customers will know what the company is up to, and how it's doing.
Tweet of the day
Trend: Bitcoin's struggle for clear directional bias continues with prices trapped in the trading range of $9,350–$9,900 for the seventh straight day.
Technical indicators like a golden crossover on the daily chart, a long-term bull cross on the three-day chart, and the positive reading on the weekly MACD histogram suggest the path of least resistance is to the higher side. A slide in the number of coins held on exchanges is also painting a bullish picture, as investors choose to hold.
As such, one may expect the ongoing consolidation to pave the way for stronger gains. However, the technical indicators mentioned above are based on historical data and tend to lag prices.
Additionally, the upward trend from the March low of $3,867 looks to have run out of steam. The cryptocurrency has failed multiple times to keep gains above $10,000 over the last four weeks and recently dived out of an ascending channel drawn from the March 13 and April 21 lows and the March 20 and May 7 highs.
Meanwhile, the Chaikin money flow indicator, which takes into account both prices and volumes, is printing negative values on the weekly chart. That indicates selling pressure is stronger than the buying pressure right now.
As a result, a pullback to $9,000 cannot be ruled out. A violation there would expose the higher low of $8,630 created on May 25. On the higher side, the high of $10,500 reached in February is the level to beat for the bulls.
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