Almost all TASE cryptocurrency stocks down in Q1

Bitcoins
Bitcoins

Of the eight companies that announced Blockchain and cryptocurrency activity in late 2017, all but one are a long way from their peaks.

"We have decided to prevent the exposure of passive investors to companies whose main activity is in cryptocurrencies. Investment in these companies is speculative, volatile, and features a high level of risk," Israel Securities Authority (ISA) chairperson Anat Guetta said two weeks ago in announcing the ISA's decision to bar such companies from inclusion in Tel Aviv Stock Exchange indices.

The ISA statement further said, "The Authority's stance follows exceptional trading in the securities of companies on the TASE that have announced in recent months their intention of doing business in the cryptocurrencies sector. In some cases, the companies' reports led to steep rises in their share prices, even before they had any real activity with results that could be evaluated. The extreme volatility characteristic of cryptocurrency trading is also reflected in trading in these companies, whose value rises and falls sharply, sometimes for no apparent reason. This volatility is likely to lead to a situation in which companies with a high level of risk meet the threshold conditions for inclusion in indices solely as a result of exceptional trading, even before they have any business activity whose results can be evaluated."

Which companies did the ISA have in mind? In the past five months, no fewer than eight companies traded on the Tel Aviv Stock exchange have announced intentions of embarking on activity connected to digital currencies. The first of them was Natural Resource Holdings Ltd. (TASE:NRH), which changed its name to Blockchain Mining. On October 18 last year, the company reported to the Tel Aviv Stock Exchange that it was examining a change in its business strategy and entry into new activity in blockchain and cryptocurrencies.

A month later, the company reported that it had hired two Canadian banks to find blockchain-connected deals, which was followed by a notice of an agreement to acquire Backbone Hosting Solutions, which operates a cryptocurrency mining server farm in Canada under the trade name Bitfarms. On December 19, the company reported that the name change to Blockchain Mining had been approved by the Registrar of Companies, and that the merger with Backbone Hosting Solutions would take place in two stages.

Approval of the merger was, however, repeatedly postponed, "because of the ISA's demand for completion of details" as the company's notice to the stock exchange put it. In the end, the merger was officially approved only at the end of last week, just before the Passover holiday. In the final quarter of 2017, the company's share price rose by some 1,500% from the price it was at before the initial announcement about the change in strategy. Today, the share price is 70% below the peak recorded in mid-December. The company now has a market cap of NIS 320 million.

At the end of last week, Blockchain Mining released its 2017 financials. It reported cumulative losses of $14.5 million and negative cash flow on regular activities of $412,000. Roy Sabag, controlling shareholder in the company and its CEO, announced recently that after the merger with Backbone Hosting Solutions was completed, he would be replaced as CEO by Wes Fulford, who was recently named CEO of the Canadian company.

Now, after the completion of the first stage of the merger, Blockchain Mining is at last starting substantial activity in cryptocurrencies through the mining server farm that Bitfarms operates in Quebec. The slide in cryptocurrency prices since the beginning of this year, however, raises doubts about the future profitability of this activity.

On December 10, Fantasy Network (TASE: FNTS) announced that it "decided to examine activity in the field of Blockchain, and a consultant has been appointed to the company for that purpose." The announcement sent the company's share price soaring but towards the end of December, after the warnings from then ISA chief Shmuel Hauser on investment in companies making announcements about entering cryptocurrency activity, Fantasy Network's share price sank, and it was down 60% by the end of the quarter. The company currently has a market cap of NIS 19 million.

A week after the announcement by Fantasy Network, Apply Advanced Mobile Technologies Ltd. (TASE:APLY), controlled by Noam Lanir, announced that it had signed an agreement in principle with third parties to establish a special purpose vehicle, "in the framework of which the parties will develop a platform for marketing, distributing, and referring customers to blockchain and digital currencies trading systems and platforms." The company later issued a clarification to the ISA in which it said, "the aim of the venture is a further application of the company's existing activity, and, in the framework of the venture, the company has no intention of investing in or setting up a trading arena for digital currencies." In the financial statements that Apply recently filed it states that the currencies venture is in the process of being set up.

The December 17 report by Apply Advanced Mobile Technologies Ltd. on the agreement it had signed sent its shares up 250% that day to an unheard of peak, but in the four days following it fell back sharply. So far in 2018 the share price has dropped 15%, and the company now has a market cap of about NIS 50 million.

The day after Apply Advanced Mobile Technologies announced its agreement, Apollo Power (TASE: APLP) reported success in a trial for mining virtual coins based on Blockchain. At the end of December, because of that announcement, a request was filed for a class action against the company and its directors. Apollo Power's share price fell 25% in the first quarter of this year, and the company now has a market cap of about NIS 18 million.

The stream of companies reporting that they were entering cryptocurrency activity did not stop there of course. On December 20, Algomizer (TASE: ALMO) announced that it was "developing complementary systems in the areas of Blockchain and cryptocurrencies." The company, which produces software for Internet advertising, said it had set up a Blockchain and ICO team to examine the idea. Since then, three months have passed, and the company has still not reported any substantial step in this direction. Despite this, Algomizer's share price actually rose 16% in the first quarter. The company currently has a market cap of about NIS 85 million.

About a month after Algomizer, on January 23, Chiron Refineries Ltd. (TASE: CHR) announced that it had decided to enter the field of accessibility of cryptocurrencies through a distribution agreement with Virtual Crypto Technologies. Chiron has a market cap of NIS 9 million after a decline of 44% from the peak it reached following that report.

Less than a week after Chiron, Technoplus Ventures Ltd. (TASE: TNPV) announced that it had "started to examine investments in companies and ventures in cybersecurity, including in Blockchain technology." Technoplus currently has a market cap of NIS 17.5 million, after a 28% decline in its share price from the peak it reached following that announcement.

The latest company, for the time being, to report to the ISA planned activity in Blockchain was Whitesmoke Software Ltd. (TASE: WSMK), which on February 22 announced that it was "examining entry into promoting digital trading exchanges, wallets and coins." Whitesmoke, whose activity is marketing on the Internet, raised NIS 2 million in January from Yair Goldfinger, a founder of ICQ, and other investors. The company currently has a market cap of NIS 21 million, after its share price fell by more than 30% from the peak it reached after the announcement of the fund raising. The share price is now back to the level it was at the start of 2018.

Published by Globes [online], Israel business news - www.globes-online.com - on April 3, 2018

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