Crypto stories are running hot and heavy once again, as Bitcoin and Ethereum have staked out dramatic new highs in recent months… and whenever that happens in a sector, we know the newsletter sales pitches will follow. I covered one of those in the Friday File last week from the Oxford Club folks, and today it’s Enrique Abeyta’s turn over at Empire Elite Growth (“on sale” for $2,000/yr, no refunds).
The teaser pitch from Empire Elite Growth, which pitches itself as a “buy and hold” newsletter for small and mid-cap growth stocks, is actually pretty similar to the ad I looked at last week from Marc Lichtenfeld — both are stocks that get teased as “back door” plays on the cryptocurrency market. Since they’re stocks, not cryptocurrencies, they can be bought and sold through ordinary brokerage accounts, which makes the whole idea a little more palatable for a lot of investors. It’s a different stock being teased this time, though, so let’s dig in and see what the details are.
Here’s a little taste of the ad:
“This is the biggest, most obvious, investment opportunity I’ve uncovered in 25 years….
“… later this month, this company is scheduled to make its quarterly earnings announcement.
“I expect that the company will blow Wall Street’s expectations out of the water. In fact, I wouldn’t be surprised if the stock takes off the next morning and never looks back….
“… this company is unique. It’s a way for you to catch the upside of the exploding cryptocurrency market without buying a single crypto.
“If you missed out on bitcoin, this could be a way you could STILL make 1,000% gains in crypto – directly through your brokerage account.
“And I’m telling you, it could even happen before 2021 comes to a close.”
So what is this “backdoor?” Abeyta says it’s a way to “bet on the entire crypto market with one ‘click’ of your mouse” ….
“… the ‘back door’ I’m talking about today is not Coinbase. It’s something potentially even better.
“It’s an exchange similar to Coinbase, but with some critical differences.
“This company launched its trading app fairly recently, but it burst out of the gates with unbelievable momentum.”
And he drops a few numbers and other details that we can feed to the Thinkolotor…
“In 2019, it had just $5 million in assets under management. Today, it has more than $2 billion! ….
“As recently as December, this company had fewer than 40,000 verified users, as the service was still relatively secret….
“By the end of January, 250,000 new users had signed up….
“In December, it generated a couple million bucks in revenue… By February – just two months later – it brought in $20 million.”
He also refers to this company as the “Robinhood of Crypto” (it’s a new kind of industry, so everyone uses those kinds of terms to make it easier to understand… the one we looked at last week, Galaxy, was teased as the “Goldman Sachs of Crypto”), and that it also has another angle: it pays interest to customers…
“This company pays its customers interest on their deposits, just like Wells Fargo or Bank of America.
“In March, it was paying customers as high as 9% interest.”
And a little more before we turn those clues over to the Thinkolator…
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“The company I’m so excited about today is bending over backwards to avoid any nasty legal surprises.
“In fact, it’s actually the only fully regulated crypto brokerage in the United States.
“It’s fully licensed in 49 states and even owns a FINRA broker/dealer for security tokens and derivatives.”
What’s that one state that hasn’t licensed this brokerage? Interestingly, it’s New York… home to, whaddya know, Wall Street and pretty much all the biggest brokerage companies. That doesn’t seem like a coincidence.
But yes, here Abeyta is teasing the cryptocurrency broker Voyager Digital (VYGR.CX, VYGVF), which launched its app about six months ago and had extraordinary timing, releasing their product just at the time that Bitcoin and Ethereum and so many other cryptos were doubling in price every few weeks.
Coinbase (COIN) is certainly the best known crypto exchange and brokerage company for US investors, though there are dozens of other fairly large ones that are pretty widely used, and one way to think of the situation is that Coinbase is kind of the big, traditional broker with lots of stodgier rules higher fees, and, yes, Voyager is Robinhood, with no commissions or fees for trading and with everything app-based so you run it all from your phone.
And there are many ways to earn “interest” on your cryptocurrency holdings, including from Coinbase for some tokens, but Voyager promotes that more than the other brokers or exchanges I’ve used — so in my little Voyager account, for example, there is an entry that they pay 6.5% interest on Bitcoin holdings, 5.25% for Cardano and 8% for Polkadot. I’m sure those numbers will move around a lot, and probably nobody is buying Bitcoin because they’re excited about a 6.5% annual interest payment (after all, the price of Bitcoin typically moves up and down by more than 6.5% in a day), but it is good to see those little interest entries in the account every day or two, and it still feels like a nice selling point… and over time, it might compound and become meaningful for their customers.
Voyager has been recommended and teased by other newsletters in the past as well, and I first covered it when it was being teased by Jim Woods about two months ago — so much of what follows is the same as what I said at that time, the story hasn’t changed dramatically, though I have updated the numbers where I’ve seen new info…
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 $3.3 billion at the end of April, which is roughly 1,500% growth in four months (and about 100% growth since February). In February they had 175,000 funded accounts and 605,000 verified users on the platform, growth of ~300% in just two months, and they kept that up, with 95,000 more accounts in March and another 395,000 users. They’ve stopped reporting as much detail every single month, but it seems likely that growth is continuing.
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 with 35% sequential growth reported pretty much across the board.
And as Abeyta teases, they should be reporting their next quarterly update quite soon, and it should be very dramatic. I doubt there are any investors who aren’t already expecting that, and stocks react more to expectations and surprise than they do to actual results, but certainly they’ll have some remarkable numbers to share next time out. I have not seen any confirmation of when the earnings call will be held, but it was on May 20 last year so the next quarterly update will likely be within the next week or two.
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 at least $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$3 billion, is valued at about 12X 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 5-8% yield.
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 with code AF72CA 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. Still an interesting idea, still a stock I haven’t yet speculated on personally.
Any thoughts on Voyager or other crypto-related investments in the stock market? Let us know with a comment below.
P.S. Abeyta’s newsletter is still fairly new, so we don’t have much reader feedback about it yet — if you’ve ever subscribed to Empire Elite Growth, please click here to share your experience with your fellow investors. Thanks!
Disclosure: Of the stocks mentioned above, I own shares of Galaxy Digital. I also hold accounts at both Coinbase and Voyager Digital, and own small stakes in all of the cryptocurrencies mentioned. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.