Bitcoin Well one-pager.

This is the kind of thing a “serious investor” would’ve done back in July when he made his first investment in Bitcoin Well (née Bitcoin Solutions) but now that the TSXV IPO has been somewhat (fortuitously?) delayed and another pre-IPO funding round has opened up, now seems as good a time as any to be a little more thorough and do my own Chamathian one-pager.i Without further ado:

Investment Thesis for Bitcoin Well – $BTCW – Bitcoin ATM and Brokering Business

Summary:

  • Fourth largest Bitcoin ATM operator in Canada with 79 machines as of December 1, 2020, approximately 10% of the national market. Market size will double in the next 18-24 months in terms of number of active machines, and double again by 2025.
  • Bitcoin Well leverages Bitcoin ATMs to give customers quick, safe, and private buying experiences.
  • Bitcoin ATMs represent an important, scalable, and distributed on-ramp into the Bitcoin economy.
  • In addition to these physical services, online services offered by the company include bill payments, gift cards, bank transfers, e-transfers, cash deposit, and cash by mail. These all have much less overhead and security risk than ATMs, and are important sell-side tools for hodlers.
  • Bitcoin Well owns 10% 40% of Ghostlab, which designs software for Bitcoin ATMs and merchant interfaces.
  • The company is Money Services Business (MSB) licensed in Canada. Operational since 2013.
  • Bitcoin Well serves the Canadian market currently with plans to expand internationally into UK and US markets starting in 2021.
  • Process-driven business with considerable economies of scale. High fixed costs for banking, compliance, legal, and accounting amortize better over larger number of machines, increasing profitability as the business scales.
  • Bitcoin ATM services specifically and the brokerage services more generally perform best in rising bitcoin markets, when coins are purchased for even cheaper than usual relative to sale price. Stable markets are also very profitable because there’s less volatility risk and the average 16% spread is maximised. After the 2021 bull run, it can reasonably be expected that the increasing influence of institutional investors/traders, as well as the larger market cap, will lead to greater pricing stability between cyclical (halving-dependent) bull and bear markets, which will improve the company’s margins and profitability.
  • Set for public listing on TSX Venture Exchange (TSXV) in 2021 under ticker $BTCW, well-timed with upcoming cyclical Bitcoin bull run. “Timing isn’t everything… it’s the only thing.”

Qualitative:

  • Founder and CEO Adam O’Brien the single most complete entrepreneur I’ve had the pleasure of meeting, much less work with. He’s non-judgemental, experimental, optimistic, gut-driven, ambitious, persistent, process-oriented, and hugely trustworthy. He’s mature beyond his years at only 27-years-old.
  • Roll-up strategy (acquisition of smaller market participants) is already proceeding briskly and will only accelerate post-IPO when liquidity is higher and war chest is larger.
  • Low risk of traditional banking industry incumbents moving into this space. Leaving localcoin, Instacoin, and HoneyBadger as larger competitors in the Canadian market, and any (or all) of these are potential acquisition targets for Bitcoin Well post-IPO.
  • Bitcoin Well’s position as first-to-public-market will give it huge exposure to a global investor class seeking exposure to the crypto-economy without risking volatility inherent in hodling. A Bitcoin ATM business like this is as close to clipping (big) coupons as there is in a zero-rate environment.

Quantitative:

  • Average CAD$ 450k annual revenue per ATM
  • Average 16% spread on trades
  • Q3 2020 EBITDA –> CAD$ 727k, a 3,549% increase from Q3 2019
  • Price is CAD$ 14mn pre-round; CAD$ 28mn post-round
  • 2020E Revenue –> CAD$ 50mn
  • 2020E EBITDA –> CAD$ 2mn
  • 2022E Revenue –> CAD$ 100mn
  • 2022E EBITDA –> CAD$ 4.5mn
  • 2025E Revenue –> CAD$ 300mn
  • 2025E EBITDA –> CAD$ 21mn
  • Price is 0.56x 2020E Revenue
  • Price is 14x 2020E EBIDTA
  • Price is 0.28x 2022E Revenue
  • Price is 6.2x 2022E EBIDTA
  • Price is 0.09x 2025E Revenue
  • Price is 1.3x 2025E EBITDA

Risks:

  • Banking relationships are notoriously fraught for fiat-interfacing companies in the Bitcoin space. These banking relationships are also essential for the fluid and consistent operation of Bitcoin Well as it transforms cash into coins for customers. CEO Adam O’Brien has dealt with this keystone issue previously and has always been successful in the past, pulling proverbial rabbits out of his hat on more than one occasion. I’m extremely confident in him going forward.
  • High network transaction fees eat into profitability. This can be mitigated with increasing fees and increasing minimum order sizes.
  • Bear markets eat into profitability. This can be mitigated with instantaneous execution of ATM transactions at partner BTC-CAD exchanges and/or derivative hedges.
  • ATMs carrying large quantities of cash are a theft risk for the operator, particularly during transportation. This risk is mitigated by armoured car services that handle cash pick-ups, ensuring security and efficiency.

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  1. Examples of Social Capital CEO Chamath Palihapitiya’s one-pagers for his recent investment can be found here: Metromile, Opendoor, Clover Health, DesktopMetal, $FVAC 

One thought on “Bitcoin Well one-pager.

  1. Pete D. says:

    Updated with more accurate reflection of Ghostlab stake.

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