Google Ads

BTCS Acquisition Progressing Forward

BTCS Inc. (BTCS) has had a rough go of it over the past couple of years and was unable to execute their business plan due to a lack of funds and other extraordinary events.  Investors have not fared well despite the meteoric rise of Bitcoin, but investors must keep things in perspective because most of that rise happened this year.  It feels like longer but it’s not.  In August BTCS and Blockchain Global Limited (BCG) signed a non-binding LOI to merge based on certain conditions.  The salient points are that the existing management needs to clean up the company to get rid of the debt and raise some cash. In exchange BTCS shareholders will get 25% of BCG.  So the price of BTCS is based on the ability of BTCS management to execute and the potential of BCG.  BTCS has no significant revenue or operations anymore and have placed all their bets on the potential acquisition of BTCS.

LOI Highlights

  • BCG shareholders shall receive a combination of common stock, convertible preferred stock and warrants equal to 75% of the fully-diluted equity securities of the Company post-closing (the “Fully Diluted Equity”).
  • The LOI also provides that the two current executive officers of the Company will receive 12% of the Fully Diluted Equity in the form of common stock, preferred stock or restricted stock units in a manner to be determined by the Company.
  • Another key condition of the LOI is that the existing holders of BTCS securities which have anti-dilution protection, redemption features and similar protections must be eliminated as determined solely by BCG.
  • The LOI requires the Company to establish an Equity Incentive Plan to acquire 20% of the Fully Diluted Equity which will be administered by an independent compensation committee.
  • The LOI is also subject to the execution of a definitive agreement which the parties agreed to execute within 30 days following the Company receiving the audited financial statements of BCG, audited in accordance with GAAP by an auditor registered with the Public Company Accounting Oversight Board.

There are always to sides to every story and the LOI focuses primarily on BCG but BTCS shareholders what to know what’s in it for them.  So doing some napkin math the shareholders of BTCS get 13% of BCS which is 75% for BCG less 12% for the 2 executive officers leaving 13% for BTCS shareholders.  BTCS has to get rid of the preferred stock so that they comply with the anti-dilution provision.  The Equity Incentive plan of 20% of the diluted shares happens after the acquisition but in fairness it goes to insiders who are restricted from selling but this does represent more dilution nonetheless. If you do the math the 13% of shareholders have management getting another 20% which is over 100% dilution to existing shareholders.

On October 4, 2017 the company filed an 8-K that effectively complying with the removal of the anti- dilution protection.  This gave investors warrants at an effective .085 strike price until 2022.  The closing will be done in two tranches with the first tranche of $100,000 release to complete the audits and then the company must complete the financials on time or they will not get the second tranche of $900,000. On October 24, 2017 the company filed a 10-Q for the period ending June 30, 2017 which disclosed under Liquidity the following “As of the date of this Report, we have approximately $5,200 in available cash, and 58.36 bitcoins (assuming timely filing and elimination of the obligation to return the bitcoin). We then will have sufficient resources to pay the costs associated with the proposed merger and pay our management accrued and future compensation through the anticipated closing date of late 2017.” This statement fails to mention the $750,000 held in escrow but it follows that it simply wasn’t released yet.  From the same filing the company had liabilities of $339,776 for the period ended Jun 30, 2017.  The money raised seems to be enough to comply with the LOI’s requirement.

The LOI also calls for the audited financials of BCG primarily because of the size of the transaction will require the filing of a Super 8-K which will need audited financials.  When the company announces they have received the GAAP financials the deal could be very close to closing.  Over the past months it looks like the company has definitely been making forward progress on the requirements to close.

Valuation of BTCS

Google Ads

With a non-binding LOI a big issue is will the company still be for sale when you As of October 19, 2017 there were 200,710,953 common shares of BTCS.  This represents a market cap of $26 million for BTCS.  BTCS will own 25% of BCG once the transaction is complete which puts the value of BCG at $104 million.  According to OTC Markets there are 83,691,937 shares in the float.  BitFlyer, a Japanese Exchange raised $27 million in April 2016 in new capital.  In June 2017 it was released that Coinbase was seeking funding at $1.0 billion valuation according to the Wall Street Journal.  Airswap recently announced it was raising money to create an exchange using an ICO.  The ICO launched on October 27, 2017.  They raised $36.0 million within 3 days between the pre-sale and the main sale.  This represented 28% of the token distribution putting a market value of $128 million on just the idea of an exchange.

The Acquisition

Bitcoin Exchange – BCG wholly owns and operates, an Australian Bitcoin Exchange and liquidity provider. Leveraging BCG’s asset security, exchange IP, and a proprietary liquidity engine, ACX provides a process to buy and sell bitcoin. Further, through ACX, BCG operates a proprietary arbitrage engine which captures a spread across multiple liquidity pools.

Bitcoin Mining – BCG currently owns approximately 6 petahash (“PH”) of mining capacity in a purpose-built outsourced facility in China. BCG’s China operation has access to electricity at approximately US$0.04/kwh.

Blockchain start-up accelerator -BCG complements its core business operations with a novel start-up accelerator program targeted at companies that are developing innovative blockchain technologies and applications. Through BCG’s Melbourne Blockchain Center, a 6,000 square-foot leased facility launched in late 2014 and located in the heart of Melbourne, BCG has played a role in accelerating the development of a number of companies. BCG typically retains an equity stake in the companies it incubates and/or receives a licensing agreement or other economic incentive.

Blockchain Consultancy -BCG also provides blockchain technology advisory services including the preparation and support of crowd-sourced Blockchain token sales and Initial Coin Offerings.

Not much is known about BCG except what was provided in the LOI announcement.  The financial metrics given were $4.4 mil 2016 Revenue and $3.5 mil in assets – Bitcoin and Cash as of July 1, 2017.  The revenues from an exchange are fees that they make which are transaction based.  They charge nothing to post a bid or offer but they do charge 1% fee to move the money to a bank.  This is a very simple transaction based model.  Growth in revenue is based on deposits and transactions.  In the future you have to think they will expand and offer margin which will allow them to make money off of borrowing and leverage of the asset.


The primary risk is the closing of the transaction.  Will management get this company cleaned up before BCG loses interest?  There appears to be a lot of incentive with very fat compensation packages in place for management to perform.  The fact that they met their October 24th deadline with their lenders speaks volumes.  The successful launch of AirSwap tells investors that there is still an appetite for an exchange.  The things investors need to come to grips with is the long road to a payback on their investment compared to the market valuation.  If the management of BCG doesn’t pursue an aggressive acquisition strategy the air might be let out of this balloon and that is a serious risk that is unknown at this time because management hasn’t spoken.

Investment Summary

Cryptocurrency is definitely a hot sector and taking slivers off of transactions seems to be a good business model but is it sustainable?  The other question investors need to figure out is what will happen after this deal is closed?  There seems to be a lot of dilution to shareholders could more be in the offering or will they end up growing the business.  This deal if closed is pretty significant because it appears to be the first publically traded crypto currency exchange.  If there are others we invite your comments.   There is no telling what can happen.  There are a lot of eyes on the success of this transaction.

All information contained herein as well as on the website is obtained from sources believed to be reliable but not guaranteed to be accurate or all-inclusive. All material is for informational purposes only, is only the opinion of and should not be construed as an offer or solicitation to buy or sell securities. The information may include certain forward-looking statements, which may be affected by unforeseen circumstances and / or certain risks.  This report is not without bias. has motivation by means of either self-marketing or has been compensated by or for a company or companies discussed in this article. has not been compensated for this article. Please consult an investment professional before investing in anything viewed within. When is long shares it will sell those shares. In addition, please make sure you read and understand the Terms of Use, Privacy Policy and the Disclosure posted on the website.