WPCS International: A Great Play on Bitcoin?
What is Bitcoin? Bitcoin is an Internet-wide distributed ledger. You buy into the ledger by purchasing one of a fixed number of slots, either with cash or by selling a product and service for Bitcoin. You sell out of the ledger by trading your Bitcoin to someone else who wants to buy into the ledger. Anyone in the world can buy into or sell out of the ledger any time they want with no approval needed, and with no or very low fees.
The Bitcoins themselves are simply slots in the ledger, analogous in some ways to seats on a stock exchange, except much more broadly applicable to real world transaction. Bitcoin is a new kind of payment system. Anyone in the world can pay anyone else in the world any amount of value of Bitcoin by simply transferring ownership of the corresponding slot in the ledger. In many cases, there are no fees. A company that could develop a trading platform that earns even small commissions off of Bitcoin exchanges could be a huge success. One such company is WPCS International (NASDAQ:WPCS), and I will discuss that in a bit. First, you must understand Bitcoin.
Bitcoin is the first Internet payment system where transactions either happen with no fees or very low fees (down to fractions of pennies). In lots of places, there are either no modern payment systems or the rates are significantly higher in order to use Bitcoin. How does it work? Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust. A string of numbers is sent over email or text message in the simplest case. If you have the money or the asset, you can pay with it; if you don’t, you can’t.
Unlike credit cards, there are no chargebacks; this is novel as such potental has never existed in digital form before. Thus, Bitcoin is a digital currency, as value is based directly on two things: use of the payment system today — volume and velocity of payments running through the ledger — and speculation on future use of the payment system. Right now, Bitcoin’s value is based more on speculation than actual payment volume. However, the speculation is setting up a high price for the currency that payments have become practically possible. The plain fact is that Bitcoin has risen in value in part because of speculation of its real life utility. Bitcoin can be used entirely as a payment system because merchants do not need to hold any Bitcoin currency or be exposed to Bitcoin volatility at any time. Any consumer or merchant can trade in and out of Bitcoin and other currencies any time they want. More and more, merchants are accepting Bitcoin.
WPCS Is A Levered Play on Bitcoin
Bitcoin is definitely becoming a competing currency. It cannot be stopped at this point without massive global government intervention. Even then, it may survive (people still trade gold and silver, as they should.) However, there is one stock that has been a poor performer in the last few years — WPCS International. It was historically a digital communications company that had been struggling, but now it is changing the game. It has moved to other segments, including Bitcoin. WPC now provides communications infrastructure contracting services to the public services, healthcare, energy, and corporate enterprise markets worldwide — and, it is developing a Bitcoin trading platform.
How will this work and what are the prospects? Well, it is the BTX Trader Bitcoin trading platform that can be found here. According to Interim CEO Sebastian Giordano, ”Though the acquisition was only recently completed on December 17, 2013, we are formalizing our plans and undertaking several initiatives to launch and begin monetizing this exciting opportunity.”
Divya Thakur, BTX Chief Technology Officer stated that, ”BTX is the first trading platform to enable Bitcoin traders and investors to access market data as well as execute orders for the top six Bitcoin exchanges in a single application. What further differentiates BTX from any other product in the market is the opportunity to be the premier algorithmic trading platform for digital currencies, allowing traders to execute orders and trading strategies not available on other exchanges, such as ‘stop limit’, which BTX already offers.”
The Stock Will Move Up and Here’s Why
This trading platform’s relevance and potential cannot be understated — it streamlines the process. Besides core trading functionality, the platform will allow one to trade with an institutional-grade user experience as well as access reliable and curated market data and leverage-refined market data visualization tools. But that’s not all. The stock will move up when WPCS announces a continuing stream of functionality enhancements for the system. Over the coming weeks and months, WPCS is expected to announce broader platform accessibility via web and mobile applications. Further, it is working diligently to integrate with other exchanges and digital currencies and to add all new features, such as commission estimates and trade tracking.
So, when will this product come to market for individuals? WPCS fully anticipates a launch of the BTX platform in the second-quarter of calendar 2014. What does this mean? It means the stock is absolutely ripe for a trade. Currently, the stock is at $1.42. I personally plan to buy at $1.35 and expect the stock swing much higher as news about the platform is released.
But that’s not all. While the BTX development team works diligently to prepare for launch, WPCS is taking other measures to plant the seeds for future potential growth of this segment of our business. WPCS has hired New York City-based law firm of Merle, Brown & Nakamura, which has represented numerous money transmitters, check cashers, and foreign exchange companies to help plan for future revenue generation and maximization of efficiencies. Further, there will be regulatory hurdles, but I think they can be overcome.
Share dilution is a concern. In the last few months, new shares have come on due to an issue over convertible bonds. WPCS first told us that it had issued 4,153,179 new shares, bringing the float up fourfold.Two weeks later, WPCS told us it had issued a total of nearly seven million more shares in three separate transactions, bringing the total share count to just over 12 million shares. Finally, just two weeks ago, WPCS reported it had issued another 1.25 million the total to 13,303,622 — major dilution here. Further, WPCS has another $1 million or so worth of convertible notes that could be converted, suggesting the share count could increase by roughly 4 million to 5 million more. That would require additional authorization, however, since according to WPCS’ latest 10-Q it is only authorized to issue 14,285,715 common shares. I would urge shareholders to vote against it.
Can WPCS monetize? Definitely. Will it be immediately? Unlikely. This stock is going to rocket higher on news. As in investment, it may take years to see real gains, but I don’t think $5.00 per share is unreasonable before summer. It may not stay there, so traders piling in now at these low prices should aim to sell between $5.00 and $6.00. Over time, I think the stock reaches $10.00, but it could sell back down to the $2.50 range from $6.00 while the company waits to fully monetize. Be aware of the volume on this name. It has been a swing traders stock for months. So, as it stands now, we can buy low and sell high.
Disclosure: Christopher F. Davis will add a position in WPCS should the stock reach $1.35, with a stop loss at $1.00 and plans to sell in the $5.00-$6.00 range. Sentiment is strong buy.