Today’s deteasification for our edutainment will be a look at a pitch from Jim Woods — he’s pitching a “$20 backdoor bitcoin trade” that has risen 5,900% over the past year… but he also says “please don’t think you’re too late for the train” and “I’m urging you to establish your position before it doubles again.”

So what’s the story? The pitch is for Bullseye Stock Trader, which is a monthly newsletter that they say will have at least 4-6 trades a month (stocks and options), helmed by Jim Woods, and they’re asking $995 for the “on sale” price (no refunds, this is a “if you don’t like it, we’ll give you another year free” guarantee, and in the future it will autorenew at whatever price they feel like charging at the time). We haven’t looked at this particular newsletter before, but the few past picks we’ve looked at from his more mainstream (lower-priced) newsletters have worked out reasonably well over the years, with IAC probably the best one in late 2019 and Blackberry the worst in mid-2018.

(And I should let you know up front, no, I have not internalized any rules about whether Bitcoin should be capitalized. So for the eagle-eyed copyeditors out there in Gumshoe land, I apologize in advance for my bitcoin/Bitcoin inconsistency.)

Here’s a little taste from the ad:

“While the rest of the world is literally stumbling all over themselves to buy bitcoin, we’ve uncovered a backdoor play that not only lets you stake a claim in bitcoin’s rise for under $20 a share, but also profit from the rise of virtually every big-name cryptocurrency on the planet, including Ethereum… and Binance… and Litecoin, just to name a few.

“I realize this sounds hard to believe…

“But, right now, there are four mutual funds that are already in on this stock, not to mention numerous insiders.”

And though it has obviously surged over the past year, as anything at all related to cryptocurrencies has, he thinks more good times are a-comin’…

“You’ll own the most profitable digital asset broker on the planet! If this trade works out as we forecast, you could see this stock double again as it did in the first week we recommended it.”

OK, so what’s the stock? Let’s get into the clues… we already know it’s under $20 (or has been at some point in the past couple weeks, this ad’s been running for a little while — the “cryptocurrency summit” that they pitched when they launched this ad apparently happened live on February 25), but what else do we get by way of clues?

“You can buy into this $20 bitcoin play without having to get involved with an exchange platform, create some kind of digital wallet, or worry that you may lose your password—like the guy who locked himself out of $240 million….

“All inside your own brokerage account—no different than holding shares of Amazon, Netflix or Tesla….”

OK, so it’s definitely a stock, not some actual cryptocurrency or alternative investment. What else?

Apparently it’s not really a bet on holding bitcoin directly, like Microstrategy (MSTR) or the various exchange-traded Bitcoin funds and trusts…

“… with this $20 backdoor play, you make money both ways: whether bitcoin and the other cryptocurrencies rise or fall.”

So how does it profit from the ups and downs? Apparently it’s a broker…

“The company is a digital-asset broker that provides retail and institutional investors a guaranteed safe solution to storing and trading cryptocurrencies and other digital assets.

“It was established by a team of Wall Street and Silicon Valley entrepreneurs to give investors a better, more transparent, and cost-effective system for trading digital assets in the marketplace.”

OK, so that’s a little bit like Coinbase, which is the biggest US-focused cryptocurrency “on ramp” for investors and is kind of like a broker, facilitating trades in Bitcoin and other tokens without really being a “bet” on whether the coins themselves will rise or fall (though bull markets are WAY better for brokers than bear markets, generally speaking — a rising tide of enthusiasm generates a lot more sustained trading activity than a splash of panic does, and brings in more new customers).

So that’s likely to generate a lot of attention, and a lot of comparisons — Coinbase is planning to go public with a direct listing in a couple weeks, and the private market trading to test the value last week reportedly gave them a $90-100 billion valuation… putting it in the same general market capitalization neighborhood as BlackRock (BLK), the world’s largest asset manager, or Fidelity and Charles Schwab, the largest discount brokerages.

By comparison, Coinbase reportedly had a profit of $322 million last year, on net revenue of $1.14 billion — those margins are fairly similar to Blackrock or Schwab, interestingly enough, only the top line is moved over a decimal point (SCHW had revenue of $11.7 billion, net income of $3.3 billion last year… BLK $16.2 billion and $4.93 billion).

That’s the sexiness of growth for you, Coinbase is coming public with a trailing PE of about 280 and revenue growth that was quite amazing last year (from $482 million to $1.14 billion, which is a little better than 130% growth), but depends heavily on what happens to Bitcoin prices from here… Bitcoin prices went up about 300% last year, but almost all of that happened in the last couple months of the year, and this year is certainly starting out lively, with Bitcoin prices jumping more than 50% just since January 1. By way of comparison, BLK has a trailing PE of about 22 and earnings growth in the 20% neighborhood, SCHW had a big revenue growth year, up 60%, but a down year on earnings and trades at 26X earnings, both were big beneficiaries from heavy trading and strong stock market performance.

And when it comes to assets on the platform, which is another good measure of size, Coinbase at December 31 had $90 billion in assets — that’s not really the same as “assets under management,” since they’re a broker, they don’t manage the accounts and collect a fee, but it’s an indication of the size of the potential business as those assets are traded or moved and generate fees. The Coinbase S-1 is actually worth a read if you’re trying to get your head around cryptocurrencies, whether or not you think it’s worth betting on Coinbase specifically.

But Woods isn’t pitching Coinbase, of course, that’s not traded yet — I just shared that to give a little context. What’s the stock being teased here?

Other clues…

“… they were able to create a hybrid trading platform that profits not only from trading bitcoin and other cryptocurrencies, but also from storing them….

“… the company is making so much money that it can pay traders as much as 8.5% on their deposit holdings….

“… the company’s deposits doubled by $100 million in December alone….”

So… hoodat? A couple readers have posted their answers, and the Thinkolator can confirm that they’re right… this is Voyager Digital (VYGR on the CSE in Canada, VYGVF OTC in the US), which was founded a couple years ago as a new cryptocurrency brokerage (the four founders include some accomplished tech and fintech folks as well as CEO Stephen Ehrlich, who was a bigwig at E*Trade and founded Lightspeed Financial, a trading-focused broker-dealer).

How do we match the clues? The assets under management for Voyager’s crypto brokerage did indeed double from November into December, as posted in this press release, they do offer a trading platform that includes a wide variety of cryptocurrencies and offers investors some yield on their crypto assets (it was 8.5%, sometimes 9.5% for larger investments — not all digital assets in their system bear interest, but close to half of them do). And, as it so happens, Jim Woods has also publicly talked about this as a favorite idea, including a mention over at Money Show in January (the stock is up about 200% since that byline, it’s been a wild year).

This is an incredible business growth story right now — I don’t know how the story ends, of course, but this part of it would be headlined “crazy growth”, they have gone from about $200 million in assets under management on their cryptocurrency platform at the end of December to $1.7 billion at the end of February, which is 750% growth in two months… with deposits just in the month of February hitting $400 million. As of a couple weeks ago they now have 175,000 funded accounts and 605,000 verified users on the platform, growth of ~300% in just two months (as of December 31, they had 42,865 funded accounts and 158,557 verified accounts).

What does that mean in terms of actual business? Well, it means that the reported income statement info for 2020 doesn’t mean much any more — their December quarter included revenue of about $3.5 million, with fee revenue of $2 million, and so far in just January and February their preliminary numbers indicate that they will report revenue of $28.6 million, with March likely to add more to that total.

Like I said, we don’t know where it goes from here… and they have essentially come out of nowhere with this explosion in users on their app and a massive surge in assets under management, with expenses to go along with that surge (they raised $146 million in new capital, so they can fund the growth for at least a while)… but that kind of dramatic growth is very unusual, and it has clearly gotten investors excited.

If they can keep up this current level of business, even without any growth beyond that February revenue number of $20 million, that would be annualized revenue of $240 million. It could fall back down if this business turns out to be a flash in the pan, or if cryptocurrency prices collapse and interest dries up, but it could also grow to several times that level in a matter of months if cryptos keep soaring and Voyager can handle the influx of new users (there’s no obvious “ceiling” on cryptocurrency interest — Coinbase has more than 50X Voyager’s assets at this point). If we assume revenue stays at that monthly level they hit in February, that would mean Voyager, with its market cap of about US$1.9 billion, is valued at about 8X revenues, which, though I should again be clear that these are different business models, looks awfully interesting compared to 80X revenues for the much larger Coinbase.

Voyager is in beta release for testing their desktop trading platform, but for now the business is entirely app-based, kind of like Robinhood over on the equity side. And like Robinhood, the goal is to make investing in the platform and trading various cryptos easy and quick (and perhaps to profit a little bit from managing order flow). I went in to try it out, and the platform strikes me as inherently a little different and maybe riskier, because it seems like you’re opening an account which Voyager manages for you as you trade in and out of various cryptos instead of having your own “wallet” … but that also makes it easier and makes it possible for them to promise those compelling-sounding 8.5% yields (that’s not to say there aren’t risks in using Coinbase and the many other exchange and wallet services as well, every provider offers different risks and benefits, and there are few guarantees in crypto world).

For investors, it’s all about growth and building a platform with a large enough user base to become stable and profitable someday… so the question really is, can they keep it up? If the last two months of revenue growth created a plateau that Voyager can maintain, with some economies of scale coming through as they get more efficient with existing customers instead of paying up aggressively to get new customers, then the business very likely could make sense even at the current size, as long as cryptocurrency trading remains even marginally popular. If the growth in cryptocurrency prices and interest continues, and the inflow of new users continues to be dramatic, then at this valuation it’s almost a no brainer, assuming no ugly skeletons in the closet. I haven’t bought shares, but I have begun my research by opening a Voyager account to fiddle around and see how it works.

If you feel like trying either of these “training wheels” onramps to the crypto world, I can tell you that I’ve been quite happy with Coinbase for a long time, and Voyager has some potential and has a wider variety of cryptocurrencies available, as well as that enticing promise of a potential 8.5% yield (though we should note, anyone who’s super-excited about speculating in cryptocurrencies right now, after a 500% trough-to-peak run for Bitcoin over the past year and close to 1,000% for Ethereum, should NOT go into these things looking for a “better than a savings account” yield — these tokens routinely move up or down more than 10% in one day, so an 8.5% annual yield is almost beside the point).

If you want to join me in these platforms either to start trading or to begin to research them as an investor, there are affiliate referral programs that would get us both a reward — so if you use my link to join Coinbase and buy or sell $100 worth of cryptocurrencies, we each get $10 worth of Bitcoin, and if you use my link to join Voyager we each get $25 of Bitcoin for placing a $100 trade (so you can see that’s one way Voyager is spending pretty heavily to recruit lots of new customers quickly). I’ve used Coinbase for seven or eight years, so I’m more comfortable and confident in that platform, but so far “>Voyager has been fun to explore a little bit.

To be clear, I consider these cryptocurrency positions to be interesting speculations, and perhaps hedges against monetary insanity if things reach some absurd level of hyperinflation (which is not terribly likely), and in some cases to be interesting “venture capital” style speculations on emerging platforms and technology standards… but I also am quite aware that it is possible my positions in these speculative cryptocurrencies will lose 90% of their value in a bad month. This is not “widows and orphans” stuff, so don’t be so enticed by those stories of 8.5% yields or 500% gains that you begin to think of these as in any way safe.

Here’s the backstory for you in chart form, just to provide a little perspective — this is Bitcoin and Ethereum in the several years leading up to the 2018 peak…

Here’s the two years after that 2018 peak, including a “dip” of about 75% for Bitcoin and 90% for Ethereum:

And then here’s the part that has everyone excited anew, the big move up from the lows of last Spring:

Is the next move another surge to new highs on the back of growing institutional interest and emerging trust in cryptocurrencies? Or a collapse if that trust is quickly broken for some as-yet-unforeseen reason? I have no idea, but if you’re new to this world I just wanted to get that “down 90%” chart into your brain before you get too excited about the “up 1,000%” part, we need to keep both those potential outcomes in mind. If cryptocurrencies collapse in value, the brokers and asset managers will fall in value, too — they might not go out of business, but they will obviously be hurt. It’s not so different from stock brokers, to get back to that comparison, so keep in mind that Charles Schwab’s share price collapsed 75% following the dot com collapse, as their revenue fell by about 50% from the peak of dot-com trading mania (and Schwab also fell by about 50% during the 2008 crash, for what it’s worth). And that valuation even at the peak for Schwab in 2000 (it was around 10X sales then) didn’t come close to what Coinbase is likely to see as it begins trading, while Voyager, being almost microscopically small, is almost guaranteed to be wildly more volatile and react dramatically to cryptocurrency prices moves.

Woods also repeats some of the same arguments that we regularly see for cryptocurrencies in general, and specifically for Bitcoin — that institutions are getting more involved in buying these assets, at least on a small scale, that investors will see them as inflation protection in the future, and that financial firms are looking for ways to get on board as the movement toward Decentralized Finance (DeFi) continues to pick up pace (and in some financial businesses, threaten some of their “middle man” fees).

And he quotes Paul Tudor Jones, a well-known billionaire hedge fund manager who helped to light the fire for Bitcoin last year by putting 2% of his assets in the cryptocurrency as an inflation hedge, and who spoke about it publicly several times last year.

I’ll just go right to the source, instead of getting into second-level hearsay on that — Jones has talked about Bitcoin as being like “investing early in a tech company”, but also cited it as a defense against what he called the “great monetary inflation (GMI)” — here’s a little excerpt from his Great Monetary Inflation report from last May that has been widely cited as a “case for Bitcoin” ….

“I am not a hard-money nor a crypto nut. I am not a millennial investing in cryptocurrency, which is very popular in that generation, but a baby boomer who wants to capture the opportunity set while protecting my capital in ever-changing environments. One way to do that is to make sure I am invested in the instruments that respond first to the massive increases in global money. And given that Bitcoin has positive returns over the most recent time frames, a deeper dive into it was warranted. I did have some experience with it back in 2017, having a tiny amount in my personal account for fun. Amazingly, I doubled my money and got out near the top when it was apparent to any market technician we were blowing off. It is amazing how well one can trade when there is no leverage, no performance pressure and no greed to intrude upon rational reflection! When it doesn’t count, we are all geniuses.

“But the GMI caused me to revisit Bitcoin as an investable asset for the first time in two and a half years. It falls into the category of a store of value and it has the added bonus of being semitransactional in nature. The average Bitcoin transaction takes around 60 minutes to complete which makes it “near money.” It must compete with other stores of value such as financial assets, gold and fiat currency, and less liquid ones such as art, precious stones and land. The question facing every investor is, “What will be the winner in ten years’ time?”

“At the end of the day, the best profit-maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market. If I am forced to forecast, my bet is it will be Bitcoin.”

Well, if he thought Bitcoin’s performance as of May made it the “fastest horse,” he must be doubly sure now that prices have now jumped roughly 500% from where they were ten months ago. I’ll join him in noting that I’m not likely to be smarter than the market during this bout of momentum-trading enthusiasm, either, but do own roughly equal positions in Bitcoin and Ethereum and (much smaller) stakes in a few other more speculative cryptocurrencies… and that I also sold some last month when Bitcoin first crested $50,000 or so.

So that’s what we’ve got for you today, dear friends… whaddya think? Ready to dabble in some cryptocurrencies for the first time? Already well past the “training wheels” trading provided by Coinbase and Voyager and having fun with your offshore exchanges or the thousands of more speculative little tokens? And more to the point for this teased pick, do you think Voyager will continue to ride on the coattails of interest in Coinbase once that larger US competitor goes public later in March, or will it surge far higher to catch up with the premium valuation that Coinbase carries? Lots more questions than answers around here at the moment, but it’s an interesting story to follow.

Disclosure: I have both Coinbase and Voyager accounts, but do not own shares of either company. Among the stocks mentioned above, I own shares of Amazon. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.