As initial coin offerings (ICOs) start to come under regulatory scrutiny in the U.S., one Australian venture capital firm is experimenting with a new way to convert cryptocurrency into regulated corporate shares.
Following a decision to offer a 300,000 Australian dollar ($239,000) convertible bitcoin loan to money-transfer startup DigitalX, investment firm Blockchain Global Limited has revealed exclusively to CoinDesk that it has completed its due diligence and will close the entire AU$4.35 million investment in bitcoin.
However, what distinguishes the deal from past startup investments using bitcoin is that, following a series of unusual events, DigitalX is now a publicly listed company that trades under the ticker symbol DCC on the Australian Securities Exchange (ASX).
As such, Blockchain Global CEO Sam Lee believes the completion of the deal will mark a milestone in cryptocurrency history.
He told CoinDesk:
"With our due diligence process satisfied, we look forward to completing the AU$4.35 million transaction entirely in bitcoin, a world's first for a listed public company."
The decision to invest in that firm that is using blockchain to simplify money-transfer comes after a due diligence period that initiated in June with a disclosure on the ASX site detailing the terms of the loan. Under the terms, Blockchain Global was given the option to covert the AU$300,000 into shares or receive repayment plus 12 percent interest one year after the drawdown of the loan.
Now that DigitalX has passed the due diligence process, the investor firm has opted to convert the entire bitcoin investment into shares, and has asked that the interest on the initial loan be paid in bitcoin.
"Conducting transactions via bitcoin guarantees that the transfer is near instant," said Lee. "And is transparent to the public in addition to the parties involved."
A new precedent?
Since first posting the terms of its convertible bitcoin loan online, DigitalX CEO Leigh Travers told CoinDesk he's been contacted by several "investor relations departments of major blockchain companies" with questions about how they can do the same.
It turns out, it's not actually that difficult. But, to understand how the bitcoin loan was executed, it's important to grasp a bit about DigitalX's unusual background.
Back in March 2014, DigitalX became Australia's first listed bitcoin company following the reverse takeover of "dying oil and gas firm" Macro Energy. The cash-rich company acquired DigitalX (then called Digital CC), but gave more shares to the acquiring company than the original shareholders had, resulting in a shift of control.
Then in August 2016, following news that Macro Energy's original founder had been indicted for fraud, shares in DigitalX plummeted, resulting in the company distancing itself even further from the founder, according to an Australian Financial Review report.
It was after a brief stint as a bitcoin mining operation that the startup pivoted to focus on developing a money-transfer app called Airpocket that used blockchain technology.
And it's at this point in the startup's story where the unusual capital raise, and bitcoin loan, come into play.
Inside a bitcoin convertible loan
Following the reverse acquisition, the company had gone from what Travers described as having "a low number of shares issued and with cash in the bank" to having "a low amount of working capital." But along the way, he said he's never doubted the blockchain market and DigitalX's ability to gain marketshare.
Still, to bridge its funding gap, DigitalX announced in June it had received an agreement to invest from Blockchain Global and other investors, but that the majority of the infusion was subject to due diligence and shareholder approval.
During this period, DigitalX needed cash – in a hurry – to maintain its operations. So, using Tradeblock's XBX reference rate to determine price, the loan was made, without middlemen, directly from the lender to the borrower.
Corporate advisors Ironside Capital Pty Ltd are helping manage the investment process for a 6 percent fee.
While bitcoin loan platforms such as Nebeus and Bitcoin Lending Club do exist, Travers said the direct method provided a series of additional benefits. This included the ability to complete the transaction on a national holiday, nearly instantly, and because the loan was visible on the bitcoin blockchain, to do so without the need for a receipt.
"Within the hour we were able to register that those funds had been transferred to use and had been cleared," said Travers. "So we were able to move onto the next part of the transaction."
From a lender perspective, Lee said the transaction was equally streamlined. Now that the decision to invest has been made, all that remains to do is to receive shareholder approval.
"Conducting transactions via bitcoin guarantees that the transfer is near instant, and is transparent to the public in addition to the parties involved."
Australia dollar image via Shutterstock