*Australian Dollar In this article we try to evaluate the first Bitcoin company which launches IPO. All the company's business is based on cryptocurrency: Mining (extraction) and hash (server capacity renting for mining). Accordingly, the company faces a huge and difficult to describe the risks that are primarily concerned with the legal aspects. Despite the large uncertainties, the company is headed by an experienced team of professionals from various fields: programming and IT, energy, finance, and applied science. Based in China, the Netherlands and Australia, Bitcoin group leverages the advantages of Asian country and Iceland as the cheap energy, space for servers and labor. Management and Commerce is located in Australia, which is the most favorable for cryptocurrency country from a tax perspective, the prevalence of Bitcoins, and state regulation, especially until quite recently. The key issue is the nature of Bitcoin and its future.The complete absence of regulation and emission control, the complexity of origin, the issue of security, high volatility make this asset very difficult to evaluate. Moreover, formally Bitcoin refers specifically to commodities, not the currency. According to many authoritative scholars and practitioners - Bitcoin is a bubble, with zero fundamental value. An alternative view is that Bitcoin is the future free world currency which is not controlled by a particular country. Company’s stock price will definitely depend on value of exchange rate. That is why we cannot avoid this point. Surfing different sources investor could find many different forecasts.Nobel Laureate Robert Shiller recognized in bitcoin a bubble almost one and a half year ago On the two charts below, we have shown visual similarity of price dynamics on Bitcoin and dotcom stocks on NASDAQ in the 2000s. Bitcoin. Drop at the end of 2013 NASDAQ. 15 years ago The excitement and novelty of the asset resulted in an unprecedented overvaluation of stock on NASDAQ. However, the problem of these companies was weak monetization, and sometimes complete lack of commerce. For example, the Linux company that develops free software. In the case of Bitcoin, there is a particular product with a market value and increasing liquidity. The sharp decline of Bitcoin in the end of 2013 was caused by China to prohibit usage of bitcoin as legal tender and in financial banks operation. There are similarities with the most popular precious metal - gold. It is even possible to estimate a positive correlation between the two assets from May to July 2015. Many investors including Warren Buffett think negatively about investments in precious metals due to their "non-growing" nature, unlike stocks or real sector. However, gold is used in the real sector (jewelry and complex production). Bitcoin in this regard is even more precarious position. On the positive properties of Bitcoins can be attributed to a negative correlation with the US dollar Thus, cryptocurrency can become safe haven for the world economy during the crisis. It is difficult to overestimate the relationship of the US dollar to the global economy. Now it is hard to imagine, but maybe in the future it will be a great way to diversify a portfolio for professional managers. The potential for growth and profitability can be evaluated in the table below: Year Annual return Annual volatility 2013 3037% 115% 2014 -33% 62% 2015 52% 57% 3037% return over the one year dramatically attracted the attention of both professional players and the general public. Moreover, it’s should be mentioned that number of bitcoins have raised since its existence. Today, Bitcoin Group receiving the 25 Bitcoins currently released every 10 minutes at the current rate 644 Australian Dollar per one bitcoin. This is the largest value in the industry at an average 5 bitcoin per hour. Currently Bitcoin Group’s Mining operation generates 6 petahashes, which is approximately 1.57% of the Global Hash Power. With regard to the rent of servers, the proportion of 1.5% is a respectable figure given the prevalence of small firms and "home" server. To December 2015 the official database contains information on 811 middle-small companies. Despite the large number of companies, most of them managed by a team of 2-5 people and has a very small market share. Hardware firms and consultants China's largest banks and exchange offices Companies to install terminals and Bitcoin payment equipment Energy companies Legal advisors However, high-tech businesses and high return will somehow attract major players from other industries. Besides, there are some barriers to new participants entering the Bitcoin Network namely, adequate funding to establish sufficient Hash Power and reputation. While pooling is always available to any new industry participant, Bitcoin Group takes the view that the barrier to entry is still high. The map below illustrates number of nodes across the world (node is any computer which connects to the Bitcoin network). According to this data, bitcoins is well spread mainly in developed countries such as EU members, USA, Canada, Australia. Usually these countries are more innovative and represents some role model for others that is why we expect the growth in usage of bitcoin in developing countries. The company presents us two development strategy: short-term and long-term Short Term: Investing and focusing on current BCM Operations by maintaining and expanding on current Hash Power levels which include the acquisition of additional Mining Equipment to be serviced under fully hosted solutions as well as seeking additional Hash Power providers Deployment of Mining Equipment with current and future providers of Fully Hosted Solution Agreements Investing in facilities to increase the efficiency of the Mining Equipment, and investing in Mining management software to better monitor Mining Equipment output. Long Term: Meeting demand for increases in Hash Power Consistently monitoring electricity markets and where favorable conditions permit, expand into new territories Expansion into middleware and application layer opportunities leveraging the Block Chain technology by developing mobile apps such as Digital Currency wallets Acquisition of smaller Miners Investing in research and development into Mining related software via Bit Tech and/or entering into joint ventures with third parties for the conduct of research and development, and potentially investing and acquiring Digital Currency industry startups that focus on building fin-tech applications, to be achieved through establishing a startup incubator. On the whole, it sounds very logical and balanced risks. Money from the share issue will be used to increase production capacity in China and Iceland to quickly capture market shares from relatively small competitors. Further, it is planned to move to the most favorable in terms of legislation and interest cryptocurrency. To be precise, the expected funds to $20 million from the IPO will be used to: Transaction fees Miners can also earn revenue from Bitcoin transaction initiators in consideration for the Miners verifying transactions between Bitcoin Wallets. Bitcoin Group considers these transaction fees to be insignificant but are expected to increase over time and will be a more significant revenue factor in the future. Thus, the company expects to increase its own mining and hash 10 times to June 2016.By expanding its existing installed service capacity, Bitcoin Group aims to expand market share from 1.5 percent to 13 percent. Bitcoin Group during FY2016 (1 July 2015 - 30 June 2016) expects to mine between 80,000 – 115,000 Bitcoins. According to the current exchange rate is about 51-74 million Australian dollars. Mainly, Bitcoin received revenues in the following areas: Quick mining of Bitcoins using advanced technologies and subsequent sale. Commission for transactions And its cost is Bitcoin Mining costs are: Occupancy costs are costs incurred in housing and running Mining Equipment owned by Bitcoin Group and includes: utilities, internet connectivity, support services and rent. Mining Pool fees represent the fees paid to the Bitcoin Mining Pools that the Bitcoin Group has joined. Depreciation and amortization expenses consist primarily of depreciation of specialized Mining Equipment for Bitcoin Mining, also sundries including fixtures and fittings, computer equipment, software and leasehold improvements are also included. Service fees are costs paid to companies that provide Bitcoin Group with a contracted level of Hash Power without the need to acquire the Mining Equipment. Employment expenses consist of base salaries, share based payments, bonuses, and other employee-related costs. Other operating expenses consist of insurance costs, communication costs, non-salary technology costs and compliance costs. Revenue Bitcoin Group generates revenue by providing computer processing activities (Hash Power) for bitcoin generation and transaction processing services to a pool operator that aggregates Bitcoin Group’s Hash Power with other providers and provides this Hash Power to the public ledger system known as the Bitcoin Blockchain. The Bitcoin pool balances the Bitcoin generation between participants to ensure the generation of Bitcoins are evenly distributed between pool participants. Bitcoin Group receives consideration for providing such Bitcoin mining activities in the form of Bitcoins, less a 2.5% commission. Bitcoin Group’s 2015 annual report shows that the company was able to record mining revenue of US $1.27 million and a net cash flow of US $315,000. With such huge profits, the firm has become one of the most profitable miners in the industry. It turns out that the profitability is as much as 24.8% despite the fact that the company is in an early stage of growth (most companies have at this stage a negative profit). We made the decision to evaluate the possible range of the company's value by using a DCF model. Separately allocate totally crazy expected increase in production capacity by 900% in 2016. Revenue for 2016 is expected around 60 million Australian Dollars (at the current rate of Bitcoins), consisting of the sale and mining of cryptocurrency 53,245,000 and rental of servers 6,755,000 Australian Dollars. On average, Bitcoin market grows at 30% annually and has a clear upward trend. Of course, such growth rates can not last forever, but given the state of the market at an early stage and huge potential, any rating agency is not achieved to give an accurate horizon of stopping the growth. We will take the highest value of the discount rate of 25% due to the high volatility and uncertainty of the system cryptocurrency, this corresponds to related industries - technology and high-tech. The company does not plan to pay dividends in 3-5 years, and then we will assume that 100% of the profit goes to reinvestment. Expected range of 5 years with increasing of FCFE at 80, 50, 30, 30 and 10, respectively, and 30% growth for extended value. And thus we obtain (in thousands of Australian Dollars): Period 2016 2017 2018 2019 2020 Terminal value FCFE $ 3 250 $ 4 875 $ 6 825 $ 8 872 0 $ 9 759 $ 10 735 r % 25% 25% 25% 25% 25% 25% G 50% 40% 30% 10% 10% DCF $ 2 600 $ 3 120 $ 3 494 $ 3 634 $ 3 198 $ 23 453 Value $ 39 499 As a result, we got a very approximate value 39 499 200. The evaluation can vary greatly depending on the course cryptocurrency, speculative and legislative changes. The company's activity is associated with the following risks: Volatility in price of Bitcoin. This is largely due to Bitcoin being relatively new in the market. In recent history Bitcoin’s value has fluctuated between US$63.00 and US$1,163.29 on the exchange Bit stamp over the last 24-month period. Increasing Hash Power requirements. As the Mining industry grows and more Miners participate in the Mining space, more Hash Power will be required to solve a Block Chain Algorithmic Equation. Competition. There is significant competition in the Digital Currency industry generally. There is no assurance that Bitcoin Group will succeed in its Mining strategy. Bitcoin Group may be unable to compete successfully against future competitors where aggressive policies are employed by its competitors to capture market share. Trading and liquidity. Bitcoin is only transferable into Fiat Currency via a third party exchange or via entering into private arrangements where parties accept to buy and sell Bitcoin for value. There is currently no central exchange available and there is a risk that Bitcoin Group may not be able to liquidate its Bitcoins, or to liquidate it at the desired market price. Regulatory Risk. As Bitcoin is a new technology, it is still being considered by various governments. There is a risk that Bitcoin may be declared illegal in which case this may impact on the value of Bitcoins and revenue Taxation. Risks also include the probability of tightening of taxation in Australia and other countries for transactions paid by cryptocurrency. Today, Australia is literally divided into two camps: for and against Bitcoin. On the one hand, it is believed that such cryptocurrency stimulates growth. On the other hand, Bitcoins have allowed many companies to evade taxes. Bitcoin is considered a commodity, that is not the currency. Thus the market is barter exchange of goods and services in Bitcoins. But such deals were not previously taxed. Today, companies are still finding loopholes for tax evasion by using Bitcoins. Therefore, some believe that it is necessary to strengthen measures to control and regulate the market of Bitcoins. Which naturally have a negative impact on the company's Bitcoin Group. Despite the controversy about the overvaluation cryptocurrency: Long term Bitcoins on many indicators and experts reminds bubble. Bitcoin is now clearly on the rise, the volume of trading and mining are growing steadily. It is also the world's first Bitcoin company IPO - a momentous event that could attract a large number of investors. This clearly improves the company's position: to attract new customers and increase the Hash Power, which will allow to generate Bitcoins faster. It is also likely that this will be followed by other companies IPO because of the large demand for such shares. An important strategic decision of the company, we see diversification of business after business expansion (currency and other assets), and thus the company's capitalization is not so much fall in the depreciation of Bitcoins and there will be time to stop the stock. Right now - this is a very unusual and attractive asset, comparable to the first dot-com companies in the late '90s at the beginning of the blow-up bubble. The main risk associated with unstable and incomprehensible nature of Bitcoin. The reports claim that 12 investors have already invested $2,924,318 USD in the fund, which accounts for 80% of the company’s investment objective. However, as the fund will be live for the next six days, investors will have some more time to get hold of the remaining 3% of the company’s equity. Sam Lee elaborated that he has always been pro-investors, and this is a golden opportunity for them to invest in a digital currency company. Such demand has confirmed a guess about the excitement around the IPO of the largest and most successful Bitcoin company, so prices will grow rapidly because of the imbalance of supply / demand at least for a short period about one year. We brought an indicative value of the company: $ 39 499 200, but it is expected deviation from the forecast due to the newness of the asset, first IPO in the industry and the individual preferences of investors. If you decide to catch the last train, it is necessary to closely monitor the news, especially of a legal nature, changes in technology, electricity tariffs, quotations of gold and currencies, as well as the general state of the economy. Bitcoin Group is a professional financial and technical agent, but most of the risks associated with the industry-wide indicators.