This is the ad that readers have really been asking me to look at over the past few days:
“JUST OPENED: A weird window of opportunity that is so rare and unprecedented it could turn every $10,000 you invest into $230,000
“Bizarre Crypto Opportunity Gives You the Chance to Own Bitcoin and Other Cryptocurrencies For Less Than $1.00….”
And the ad has been perfectly timed to attract attention during the recent rise of bitcoin, and the attention-getting Facebook Libra cryptocurrency chatter.
Pretty much every publisher that includes a mention of bitcoin claims that their particular expert newsletter guy is a “world-leading expert” on cryptocurrencies, which is not something I can claim, so you’ll have to take my commentary with a grain of salt… but we can at least identify what Nick Hodge is talking about in this ad. Ready to join in the unraveling?
Hodge starts with the braggadocio lead-in that is so typical of the industry:
“There are perks to being one of the top financial analysts in the world.
“One of them is having the clout to gain immediate access to a bizarre opportunity in the crypto markets that is so rare and unprecedented…
“You shouldn’t even think about buying a single bitcoin or ANY other crypto unless you know the insider’s secret I’m going to disclose to you today.”
I don’t know Nick Hodge, I’m sure this is partly a marketing persona and he probably wouldn’t talk like this in person, and I’m not at all a violent guy, but here in conservative rural New England that kind of bragging would probably get a punch in the face (unless you’re Tom Brady, of course).
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The real driver of all ads like this is “FOMO,” of course (Fear Of Missing Out) — all the people who missed out on becoming Lamborghini-driving bitcoin millionaires last time around are probably fretting about missing it again as bitcoin recovered a bit this year… so we’re all primed for this kind of salesmanship now.
And perhaps what’s more galling is the promo stuff where Hodge takes credit for huge gains at Natcore and Stellar Biotechnologies in the past — those are both stocks that we covered when they were teased by Hodge and others, and they did post some quick rises in share price as a result of that attention, but both were disastrous when it comes to the huge long-term gains that were promoted as possible.
So we’ll provide some perspective, since he brought those two up — maybe this will help you to slow down and think over any investments that sound so compelling in “story” form.
Stellar did yet another 1-for-6 share consolidation and merged with Edesa Biotech (EDSA, formerly SBOT) a little while ago. Back when Hodge teased the shares, they did spike up about 200% from the time that he first touted them… but he kept that promo rolling for a long time, and it is now down 97% from that initial price (or 99%+ from the peak), and he and Michael Robinson (selling his own newsletter) touted and teased it many, many times in 2013 and 2014. Here’s what that looks like in chart form:
And Natcore (NXT.V, NTCXF) is another that has proven the adage that “you’re never down so far that you can’t fall another 90%” — we first saw Hodge’s pitches on this one back in mid-2012, and his attention did cause a spurt in the share price, almost a quick double, but then it drifted down in fits and starts, and is now down 96%. We don’t know when Hodge recommended Natcore to his actual subscribers, but here’s the performance starting the day we first saw it teased as his fave stock and covered it here at Stock Gumshoe:
So… what is it that this “one of the top financial analysts in the world” fella wants us to buy now?
Well first, of course, is his newsletter, Early Advantage ($1,999/year, though unlike many high-end letters he does hold out the possibility of a refund if you’re not satisfied) … but the pitch for the newsletter dangles out the promise that he’ll be revealing for you the super “Crypto66” deal that will give you “the chance to turn every $1000 you invest into $23,000…”
Sound good? Sure, who wouldn’t want a huge return like that?
What is he actually talking about? Well, let’s check out the spiel… here’s a little bit:
“Now just to be clear: this is a completely new crypto investment.
“One 99.99% of investors have no idea even exists.
“And that to me is the ultimate crypto calamity.
“Because what I’ve uncovered and have been cleared to disclose to you is as lucrative as it gets.”
What could be more fun than being in the informed 0.01%, right? What is it?
“… it allows you to legally buy the hottest, most profitable crypto for less than a dollar.
“So you can own cryptos at a small, tiny fraction of what everybody else has to pay….
“So you can own the most explosive cryptocurrencies on the market today at yesterday’s prices.”
And yes, since this is a top-secret newsletter spiel, the investment has to have a mysterious name…
“It revolves around something hush-hush that I’m privy to called ‘CRYPTO66′”
… and a probably-made-up deadline, to encourage you to pull out your credit card quick, before you have too long to think it over…
“Because of a little-publicized event — taking place by June 30th — this rare chance to bank big crypto gains could disappear forever.”
He even shows a photo of a secret building, near the arctic circle, where this Crypto66 pheonomenon is emerging…
“…. behind this fence topped with barbed wire and crawling with security is what I now believe will be the biggest… most lucrative… call I’ve ever made….”
And he takes away many of the “sounds too hard” fears that many people have about cryptocurrencies…
“You do NOT need a ‘private key.’
“You do NOT need to have a special ‘digital wallet.”
“You do NOT have to worry you’ll get hacked.
“You will NOT be subject to anti-money laundering statutes.
“You can NOT have your money stolen from you.
“You do NOT need a ‘virtual private network.’
“And you do NOT need to know a thing about blockchain.”
While still giving the impression that you can just invest in this whatever-it-is and somehow get cheap access to all the hot cryptocurrencies:
“Ethereum… Bitcoin Cash… Monero… Litecoin… Dash… Bitcoin
“Or any other hot crypto with one click of the mouse.
“That’s how simple Crypto66 is.
“It’s so easy you can own all of those cryptos and more in less than 90 seconds….
“And no, Crypto66 is NOT an ETF. It has nothing to do with the Bitcoin futures, either.
“In fact, it’s something that’s not traded on the NYSE or the Nasdaq.”
OK, fine, so it’s some kind of stock… of a company that owns some sort of crypto-mining facility… other clues:
“It’s over 4000 miles from my home near Spokane in a desolate spot located 37 miles from the Arctic Circle….
“… a small town of less than 20,000 in Swedish Lapland”
And we’re told who a couple of the key investors are:
“David Rowe…. He’s a British high-tech entrepreneur who built EASYNET from scratch before he sold for over $500 million.
“Later, he founded his own venture capital business called Black Green Capital.
“Its unique specialty is disruptive digital technologies… just like this.
“Another is Robert Keith, owner, board member, and investor in numerous highly successful companies, most notably Opticom and Fast Search & Transfer.
“You know it today as Microsoft’s Bing.”
So these two tech investors are behind some sort of crypto mining facility… is there anything else special about it?
“…. with this piece of state-of-the-art crypto hardware… about the size of a loaf of bread…
“You can print all the money you want.
“Just like the Federal Reserve.
“And it’s all 100% legal.”
Apparently thousands of iterations of this hardware are operating in a huge building, with six operational wings.
“So what can you do with 41,000 high-performance computers… each one capable of 14 TRILLION calculations per second?
“The answer is simple: You can print a heck ton of cryptos.
“43 newly-minted bitcoins a day, to be precise.
“Operating 24 hours a day, 365 days a year without interruption…
“That translates into a boatload of money as those cryptos roll off the presses.
“Even at $4,000 a coin, that’s $172,000 a day in revenue or a cool $62,780,000 a year.
“At $10,000 a coin, which is where I think Bitcoin is headed, revenue could hit $156,950,000 a year.”
Apparently it’s not just mining bitcoin, but also collecting some kind of “fee” …
“And that doesn’t even include what they could make in fees….
“In the first half of the year, companies like this were awarded $4.7 billion from fees and Bitcoin rewards alone.
“That’s over $10 billion in fees this firm has every right to collect its fair share of for helping to maintain the network.”
Notice that “fair share of” bit… it doesn’t stick in the memory like “$10 billion,” but I bet it’s far more important.
And where does this company stand now?
“$7 million is roughly what the company generated in revenue last year….
“Not including the fees, it means, over time, the revenues here could surge by nearly 2,200%.
“That’s the definition of HYPER-GROWTH.”
So that’s where the “$1 into $23” bit comes from, the expected sales growth of this company.
Then we get the big dollop of false conservatism that we almost always see in these “estimates”…
“I never want to overstate the potential in any investment.
“The numbers I’ve shown you are simply what’s possible with this.
“And I honestly don’t think we’ll see revenues that big… at least over the next 12 months.
“Plus, the company has other dedicated business interests outside of cryptos that I’ll explain to you in a moment.
“So, there’s more to this than just cryptos.
“But you’d have to admit even a fraction of those gains could make you a small fortune.
“Even if they only grew to $75 million in revenue…
“If the shares followed suit, that alone would be enough to hand you over 10 TIMES your money.”
Can you imagine a local company trying to pitch you on an investment in their chain of restaurants or something? What if they said, “well, even if we only grow our revenue by 10X this will still be a good investment!” You’d laugh them out of the room, no? That’s not a fair comparison, I’m sure, but always keep a little dose of that real-world skepticism in your back pocket when reading these dreams of lucre.
So why is this top-secret Crypto66 such a good investment?
Mostly because of the location, apparently — Sweden has very low cost electricity, so the cooling and operating costs are low… and they also have very low year-round temperatures near the arctic circle, so cooling costs are lower anyway. That’s why the big internet companies started putting big data centers in areas like this, with access to low-cost and reliable electricity (Sweden’s is mostly from hydroelectric dams, but other northern climes offer nuclear or geothermal power as well).
From the ad:
“So what does it cost to mine crytpos in Swedish Lapland, where you don’t need to turn on the AC and electricity costs just $0.05 per kilowatt hour?
“With so many people throwing in the towel, it’s dropped down to a measly $3,100 a coin…
“Or 57% less than the worldwide average.
“So even at today’s prices, Crypto66 can print coins all day and still be deep in the black.”
Cryptocurrency mining is inherently competitive, you earn the right to “mine” coins by being faster than other miners on the network, so I’m sure that competitive situation changes all the time — and is probably far different now that bitcoin has had another surge and re-ignited the animal spirits (it has roughly doubled in two months, hitting $10,000 again).
So what’s the stock? Well, at least the number part wasn’t totally made up — this is Hydro66 (SIX.CX on the CSE, HYHDF OTC in the US), which owns a data center campus in Boden, Sweden and was formerly called Arctic Blockchain (they changed names when they went public through a reverse merger with a mining shell last year… and when it became clear, at least temporarily, that the idea of a “low energy datacenter” might sound better than “blockchain” in the eyes of investors.
And yes, David Rowe and Robert Keith are the major shareholders — Rowe with about 39%, Keith 29%. And they do have a substantial data center campus right near the arctic circle, with low electricity costs and a focus on high-intensity operations — blockchain mining as well as high performance computing.
The basic pitch the company is making to investors is in their slide deck here.
The company has been public for a little over a year now, and does have some revenue (it was indeed around C$7 million last year), but is not making money or growing revenue in any particularly steady way. They are talking more about cryptocurrency mining again now that bitcoin prices have shown some resilience, the April “strategic update” was headlined “Focused on progressing the Enterprise business while taking advantage of recent positive momentum in the crypto market” and includes some “opportunistic” language:
“In addition to the colocation business that Hydro66 continues to build, the Company continuously monitors the global cryptocurrency and blockchain space for opportunity. The Company is opportunistic in utilizing its world-class data center infrastructure to provide hashing power to mining pools when positive returns can be generated. This flexibility, to turn on and off hashing power, is a strong competitive advantage and avoids leaving the company materially exposed to negative movements in the sector, while providing significant leverage to cryptocurrency price upside.
“Anne Graf, CEO, continued, ‘Hydro66 continues to look at the crypto asset space and opportunistically enter whenever it is profitable. Utilizing equipment that was acquired at the bottom of the market means that there is essentially no capital expenditure to recuperate. This allows us to gain exposure to a rising cryptocurrency market while substantially protecting ourselves from any downside volatility. The ability to gain exposure from hashing power is a great cash flow opportunity as we continue to build out our Enterprise business.'”
So what you effectively have is a remote but should-become-profitable colocation data center, with low energy and cooling costs. And with effective control by two investors, with a big slug of warrants over the next year or so that are probably motivating some investors to want to drive the shares higher (a few at 50 cents expiring right now, which might have something to do with the timing of Hodge’s promotion or the company’s interest in getting his attention, and 45 million at 75 cents a year from now — the shares are at 67 cents today, they started the month at about 46 cents… all of those are in Canadian currency).
What’s it worth? Well, that’s your call to make. It looks like they spent something like C$15-20 million to build or buy it (that’s the total of the “properties” and “Machine, furniture and equipment” lines on the balance sheet, and it’s a brand-new company so those haven’t had much opportunity to depreciate yet). The company is currently valued at C$86 million, which is roughly 12X sales… so they do need to grow. I don’t know what their growth rate might be, they haven’t given any forecasts or guidance that I’ve seen. By way of comparison, the big data center REITs who operate at far larger scale trade at somewhat crazy valuations, and they’re at only 7-8X sales at the high end. Hive Blockchain (HIVE.V, HVBTF), which was a widely-touted “crypto mining infrastructure solution” company during a crazy spike in late 2017, has grown its revenue nicely over the past year or so but trades right about at the value of their property & equipment, and at about 3X sales (they have a similar location strategy, though I think they’re in Iceland).
I imagine it’s probably hard to be a single-location data center company, you don’t get any efficiency of scale in terms of selling costs or overhead, so even if you have the advantage of a good location and cheap electricity you still might need something else to push you to profitability. They seem to be focusing on the high-intensity computing markets like high performance computing and blockchain mining… but I don’t know how their pricing differs from that of other data center colocation companies, and I can’t think of any other data center companies operating at this small scale so it’s hard to picture how it will develop. Personally, I have a hard time imagining how it becomes profitable…. perhaps they keep growing their footprint and become big enough to get good scale or be acquired, or maybe doing bitcoin or crypto mining for their own account is the way they make it work, but they don’t seem to be doing that to any substantial degree (at least not as of the first quarter of this year).
But wait, there’s more! Hydro66 apparently is aware that they aren’t big enough to make this a profitable business built on a single data center… so they are in tentative agreement to merge with Whinstone. This proposed merger was announced last month and is expected to take place in combination with a capital raise of $40 million (which is good for them, because Hydro66 is probably also out of money at the moment), and it will combine Whinstone’s small Louisiana facilities with Hydro66’s similar-sized Swedish data center campus but also lead, they say, to the development of a much larger footprint as they aim to more than quadruple in size (from the current 19MW at Hydro66 and 20MW at Whinstone to a total of 196MW).
We don’t know anything about Whinstone’s financials (they’re private), and the proposed merger would be 50/50 (the principals control more than 50% of the company, so I assume they can push it through if they wish to), so at this point you’re investing in something that is half-known and not profitable… a possibility of creating a larger cryptocurrency-focused data center/colocation company.
That’s not enough for me at the moment, partly because it’s hard for me to see how someone develops a compelling “edge” in the crypto mining industry when every techie in the world is working on shaving that edge away at every moment, and I don’t know whether either of these companies is unique enough to create cash flow from a small operation in a colocation industry that is dominated by giants… so I don’t particularly want to be the one funding their expansion projects by buying now, but it is an interesting story and I have no idea whether or not it might “light up” with the recently renewed enthusiasm for cryptocurrencies. If you see a shining light here, or a skeleton in the closet, please do let us know what you think with a comment below.