WPCS International (NASDAQ:WPCS) fully anticipates a launch of the BTX Trader platform, its revolutionary Bitcoin trading platform, in the second-quarter of calendar year 2014. Currently, the stock is at $1.61. It had dropped like a rock in the month of January and bounced off of the $1.35 level. It has been range bound between $1.50 and $1.75 for the last few weeks. Still, there is a lot of short action. Given the short interest in the stock, when positive news starts rolling out regarding the Bitcoin trading platform, expect the stock to swing much higher. I suspect WPCS is setting up to release some major news soon on the BTX trading platform, although it is scheduled for a second-quarter release. I suspect news coming on the platform because of the language in its recent 8-K SEC filing.
Of course, the company is legally obligated to share all potential market risks and plans for the business in these filings. However, the timing of the release is peculiar. It tells me that the outlining of plans and risks is likely a prelude to a big news release catalyst approaching for the stock. In this article, I will highlight some of the major points you need to be aware of.
For the most part, the release focused on all of the risks associated with the BTX trader when it comes to market. WPCS warned that it is currently still in early stage beta testing of its trading technology platform that provides access to 90 percent of publicly available Bitcoin liquidity. The trading platform enables users to make informed decisions by providing aggregated and curated market data from all major trading venues.
WPCS enumerated a bunch risks that are known and cautioned, while there are certainly unknown risk relating to the BTX trader and its operations that could result in WPCS failing to meet its goals. WPCS cautioned that should things go awry the business, financial condition or results of operation may be materially adversely affected. In such cases, the trading price of the company’s common stock could decline and investors could lose all or part of their investment. However, if things work according to plan, the stock could appreciate significantly in a short period of time. Most experts peg the stock at $5.00 should the launch go seamlessly.
Outlining of the Risks
Although WPCS intends to develop, market, and operate the BTX trader, it may not be able to successfully compete in this sector, and thus, it may fail to realize all of the anticipated benefits of the acquisition of BTX. One of the prime risks is Bitcoin itself. The slowing or stopping of the development of the Bitcoin Network or the acceptance of the Bitcoin may adversely affect an investment in WPCS. I contend that such volatility in Bitcoin is a huge positive for WPCS as it will lead to higher trading volumes.
To be fair, the growth of Bitcoin and the digital currency industry in general — and the Bitcoin Network in particular — is subject to a high degree of uncertainty. Any risk to the proper adoption, implementation, or functioning of Bitcoin also poses a risk to the company’s platform. WPCS outlined several factors affecting the further development of the digital currency industry, as well as the Bitcoin Network. WPCS outlined the following factors that could impact the success of the BTX trading platform that the success of WPCS as a whole. These included the following.
“Continued worldwide growth in the adoption and use of Bitcoin; Global Bitcoin supply; Global Bitcoin demand, which is influenced by the growth of retail merchants’ and commercial businesses’ acceptance of Bitcoins as payment for goods and services, the security of online Bitcoin Exchanges and digital wallets that hold Bitcoins, the perception that the use and holding of Bitcoins is safe and secure, and the lack of regulatory restrictions on its use; Government and quasi-government regulation of Bitcoin and its use, or restrictions on or regulation of access to and operation of the Bitcoin Network and derivative industries and technologies; General global economic conditions, including interest rates, inflation, currency exchange rates, governmental monetary policies and trade restrictions; Changes in consumer demographics and public taste preferences; The availability and popularity of other forms or methods of buying and selling goods and services, including new means of using Fiat Currencies; Investors’ expectations with respect to the rate of inflation; Interest rates; Currency exchange rates, including the rates at which Bitcoins may be exchanged for Fiat Currencies; Fiat Currency withdrawal and deposit policies of Bitcoin Exchanges and liquidity on such Bitcoin Exchanges; Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in Bitcoins; Global or regional political, economic or financial events and situations; and Expectations among Bitcoin economy participants that the value of Bitcoins will soon change”.
These risks are numerous, but WPCS is legally required to share all possible risks prior to launching the platform. This is why I suspect a major news release catalyst is pending that could propel the stock higher. Another factor to think about is that many Bitcoin Exchanges have been closed due to fraud, failure, or security breaches. In many of these instances, the customers of such Bitcoin Exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin Exchanges. However, WPCS stated that, “Initially, our trading platform is less likely to have the infrastructure and capitalization that make larger Bitcoin Exchanges more stable, but as our operations grow, we are more likely to be appealing targets for hackers.” This is a risk common to all digital businesses. What this means is that WPCS is close to bringing the trading platform to market.
Expectations of Bitcoin Growth
The use of Bitcoin is growing, and currently, the price of Bitcoins is based on future expectations of the adoption of Bitcoin. Currently, there isn’t much use of Bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, and the lack of an established marketplace for Bitcoins could adversely affect an investment in WPCS. As Bitcoin is still in its infancy, it has not been adopted as a means of payment for goods and services by major retail and commercial outlets. Conversely, a significant portion of Bitcoin demand is generated by speculators and investors seeking to profit from the short- or long-term holding of Bitcoins. While this is initially going to be strong for WPCS, eventually a lack of expansion of Bitcoin into retail and commercial markets, or a contraction of such use, may result in a reduction in the use of Bitcoins and could adversely impact an investment in WPCS.
Bitcoin currently faces an uncertain regulatory landscape in not only the United States but also in many foreign jurisdictions. In the future, new laws could be adopted. There could be regulations or directives that affect the Bitcoin Network and its users, particularly Bitcoin Exchanges and service providers that fall within such jurisdictions’ regulatory scope. Such laws, regulations, or directives may conflict with those of the United States and may negatively impact the acceptance of Bitcoins by users, merchants, and service providers outside of the United States, and may therefore impede the growth of the Bitcoin economy.
The effect of any future regulatory change regarding Bitcoins is impossible to predict, but such change could be substantial and adverse to WPCS. For example, in the future it could theoretically be illegal to acquire, own, hold, sell, or use Bitcoins in one or more countries. Although currently Bitcoins are not regulated or are lightly regulated in most countries, including the United States, one or more countries may take regulatory actions in the future that severely restricts the right to acquire, own, hold, sell, or use Bitcoins or to exchange Bitcoins for other currencies. Such restrictions may adversely affect an investment in WPCS.
The Hiring of a World Class Investor Relations Firm
These risks are outlined so that there is full disclosure by the company. But you have to ask why it is outlining the risks now? I believe the most logical response is that a huge announcement is coming in the next few days. We also learned that WPCS has just hired Alliance Advisors to serve as its investor relations firm. The timing is indeed peculiar. First, an announcement of all the risks — the most important which I have summarized above — and now the hiring of a high class investor relations firm. This tells me that WPCS is setting up for a major announcement that is going to generate a lot of buzz and a lot of action in the stock. This news event will likely propel the stock significantly over the course of a few days similar to what we saw back in December when the stock traded wildly on the Bitcoin trading platform news. Thus, I recommend investors consider taking advantage of the weakness in share prices and consider buying ahead of this likely news release
Disclosure: Christopher F. Davis is Long WPCS.