Bitcoin Group Limited (ASX:BCG) is set to become the first bitcoin company to list on a major stock exchange via an Initial Public Offering (IPO). With increasing recognistion of the bitcoin currency but a limited operating history, what's the outlook for Bitcoin Group IPO?
Australia punches above its weight in the global currency markets. Whilst our economy ranks as the world’s 12th largest, the Australian Dollar commands the fifth highest turnover behind the British Pound, Japanese Yen, Euro, and US Dollar. As a cyclical contraction in demand for the nation’s biggest exports is presently challenging its mantle, could the emerging realm of virtual currencies provide another source of competition?
Virtual currencies evolved from the video gaming industry during its transition to online multiplayer formats in the late 1990’s. Originally, virtual currencies were typically closed systems operated by individual game vendors. The virtual currencies provided a means for users to purchase additional game features and functionality. Estimates of the market for virtual goods of this nature range from US$200million to US$10billion. Conceived in 2008, Bitcoin provided the first universal medium of exchange for virtual goods, digital goods, and online services. Whilst there are currently 500 different virtual currencies in operation, Bitcoin is the world’s largest, with an 80 per cent market share.
The coming listing of Bitcoin Group aims to harness commercial opportunities surrounding this virtual currency system. Its principal activity is the delivery of transaction verification services for Bitcoin. The process of Bitcoin transaction verification is colloquially known as ‘Bitcoin Mining’ because service providers such as Bitcoin Group are remunerated in units of Bitcoin. Bitcoin Group has operations in Australia, China and Iceland, representing a present market share of 1.5 per cent.
Impetus for its Initial Public Offer is a desire to expand market share. The Company aims to increase its installed transaction processing capacity by 14-fold during H2 2016 and capture a market share in the order of 13 per cent. From its existing operating base, Bitcoin Group generated revenue of $1.7m last financial year. Increasing capacity has potential to improve the Company’s financial performance, although the benefits are not assured.
Entry barriers within the ‘Bitcoin Mining’ industry are limited, hence increasing competition could impair profitability despite the Company’s planned capital investments. Other principal risks surround Bitcoin Group’s limited operating history, ongoing reliance on external funding, and vagaries associated with operating in China – which represents 98.5 per cent of its processing base.
Company: Bitcoin Group Ltd
ASX Code: BCG
Shares on Offer: 100million
Listing Price: $0.20
Market Capitalisation: $32.9million
Listing Date: November 11th
Author: Tim Morris
Oct 19, 2015
Having studied Commerce and Science at the University of New South Wales, Tim began his career in an analytical capacity with Wise-owl. Tim has conducted over 500 corporate valuations and appraisals, specialising in pre revenue assets and emerging markets. For the last five years, his Equity Capital Market insights have been featured as part of a weekly column in The Australian and regularly features on Sky News, CNBC, ABC and Bloomberg TV.