BitGold frenzied like it’s 1999
Shares of BitGold Inc. are caught up in a speculative frenzy that has some onlookers recalling the heady days at the top of the tech bubble in the late 1990s.
Toronto-based BitGold began trading on the TSX Venture Exchange last Wednesday at a list price of 90 cents, giving the company a market cap of slightly more than $30 million. It promptly tripled in its first day of trading, and it has barely slowed down since.
On Tuesday, the stock climbed another 59 per cent to close at $6.68. And on Wednesday, it touched $8 before settling back to $6.14.
At $8 a share, BitGold had a market capitalization of $293 million, an astounding level for a company that just launched and has about $9 million of cash and a handful of employees.
It is far too early to say what BitGold might be worth in the long term, but that hasn’t prevented retail investors from piling into the stock. At Stockhouse.com’s online discussion forum for BitGold, new posts were appearing every minute or two on Wednesday afternoon.
“It feels a lot like 1999,” said John Kaiser, a veteran junior resource analyst. “This thing has a technology spin to it, nobody understands what it’s potentially worth, so it can be worth whatever you want it to be.”
The idea came from cofounders Roy Sebag and Josh Crumb, who wanted to create a service that would allow people to buy a Tim Hortons coffee using gold. They got big-name investors such as billionaire George Soros and Sprott Inc. to back their plan. Sebag, 29, controls more than half the stock, according to a filing.
The company has earned praise from onlookers, who think the idea has a lot of potential. But people are already starting to raise red flags about the valuation.
One of them is Peter Schiff, a well-known market commentator who owns a gold banking business through his firm Euro Pacific Bank Ltd. Euro Pacific offers a gold- and silver-backed debit card to clients, similar to what BitGold is planning.
Schiff said in an interview that gold dealing is a “very competitive” industry with a lot of costs, and that BitGold’s business appears to have low margins and caters to small buyers. He also said that there are no significant barriers to entry, and it will be easy for other people to launch rival services if BitGold catches on.
“The question is: What is their business going to be worth?” Schiff said.
“According to the market cap, it’s over $200 million. Would I sell my bank for $240 million? Of course. And my bank is profitable, it’s been in business for years, and it has US$150 million of deposits.”
Still, he praised BitGold for trying to make gold ownership more liquid so that people can spend it like a currency.
BitGold only opened for business a couple of weeks ago, but it has already signed up thousands of users. In an interview last week, Sebag said the product is catching on with a broad audience, as gold bugs made up less than 10 per cent of the user base.
But in the short term, Kaiser said the stock appears to be a plaything for some of the gold-bug crowd. “They’re not having any fun in gold stocks anymore, so now they’re looking at something else,” he said.
Gold bugs are not having any fun in gold stocks anymore