Monsoon Farming and Buying Crypto Stocks are Very Alike

By | April 16, 2023

Plant the seeds and prepare to wait a long time for rain. Finally, you see a cloud on the horizon. Then it’s buckets and buckets of water coming down on your field, and your crops start to grow, very fast.

Last week I profiled Neptune Digital Assets (TSXV-NDA, NPPTF-OTC) when it was trading just above 20 cents. It closed Friday at 38 cents. That’s a good start.

In a bull market, the price of small-cap crypto stocks lags behind crypto. The market wants to see a healthy rise in Bitcoin and Ethereum before starting to buy stocks in the sector.

Bitcoin is up more than 80% year-to-date, and Ethereum is up more than 70%. Most Bitcoin mining stocks on the NASDAQ are up more than 150% (See Riot Blockchain, Bitfarms, Hive Blockchain) since the beginning of January.

But small-cap crypto stocks? Nothing until this week. In 2023, $10k in trading volume has been a good day for most of these stocks.

Now, if you are a long-time penny stock trader, you probably saying to yourself, so what? All penny stocks, in every sector, are like that.

Penny stocks, or microcaps, are famous for being illiquid until some promoter decides to wind up the publicity machine and get the word out.

But there are significant differences between your average microcap and microcaps in crypto.

For example, when trading in a penny stock is halted, it’s usually because of impending news or the company ran out of money (ie they are bankrupt).

Unless it’s a crypto stock. I have seen a lot of trading halts because the company is having trouble filing some mandatory financial reports.

Because accounting/auditing rules about crypto are changing all the time, reporting delays are common. And it’s super-annoying to investors when they can’t trade out or in of the stock for months at a time.

Another significant difference is that, unlike your average mineral exploration microcap, many crypto-stocks have a positive cash flow, or I should crypto-flow (which they can easily sell for cash, so it’s the same thing in my head).

That sounds like a good thing, and in the long term, it is. But it also means that a lot of CEOs can just go turtle and ignore the public markets. They are not forced to raise money to pay for expenses, so they don’t care as much about investor relations, as let’s say, your average CEO of a gold stock.

As a result, there can be great deals for small, patient, retail investors in this sector, if they are willing to do some homework.

Take, for example, Ether Capital Corporation (ETHC-AEQUITAS NEO, DTSRF-PINK). I have been slowly accumulating dribs and drabs of shares all week, on stupidly low trading volume.

The stock is trading just above $2.00 CAD with a market cap of just under $70 million CAD. But they own 45,565 Ethereum which is worth $129 million CAD. It’s trading at a 45% discount to NAV.

They have also staked enough Ethereum that they made $5 million CAD last year in yield, which is enough to pay the electricity bill and salaries.

When will the stock pop up to at least reflect the book value? Who knows? The executive team doesn’t need any money, so I don’t expect any big promos anytime soon.

It trades on the NEO exchange, a junior exchange up in Canada, and on the US pink sheets. Good luck trying to find the ticker on Robin Hood or Wealthsimple. The average US discount broker won’t touch this stock with a ten-foot pole, no matter great the books look.

So why invest in it?

Well, you could have said the same thing about Bitfarms and Hive Blockchain years ago, when they were listed just on the junior exchanges.

The big payoff with these stocks is when they get up-listed. How long will we have to wait with Neptune and Ether Capital Corp?

I don’t know. But I check the horizon every once in a while, looking for a cloud or two.


Editor’s Note: Nothing that I write should be construed as advice on investin