Talk about a pivot. Altvest Capital, the company formed to “democratise” alternative investments, has taken a radical left turn, looking to raise $210m and turn itself into a bitcoin treasury play.
“The appetite across the world is massive,” says Altvest founder Warren Wheatley, who will be asking shareholders to vote on a name change to the African Bitcoin Corporation. The new-look company plans to “accumulate and hold bitcoin to preserve value, hedge against inflation and increase long-term shareholder exposure to Bitcoin’s potential upside”.
It’s a head scratcher, until you consider the frenzy that has lately made bitcoin treasury companies, and their shareholders, fantastically rich. On paper, at least.
Foremost among them is Michael Saylor, a bitcoin evangelist who turned his software company MicroStrategy (now simply called Strategy) into a bitcoin holding business back in 2020. That pivot has seen Strategy’s share price up 2,258% since, as the price of bitcoin has rocketed.
Saylor’s social media is filled with posts like this: “Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster and stronger behind a wall of encrypted energy.”
Make of that what you will, but he seems to be having the last laugh; Forbes estimates Saylor’s net worth at $8.8bn; wealth derived from his stake in Strategy, which owns more bitcoin than any other listed company – an estimated 636,000 coins valued at about $71bn.
For Altvest, valued at just R50m on the JSE, the numbers are far more modest. The company is looking to raise an initial R11m from investors by issuing 1-million new shares at R11 each – a big premium to the existing share price of R4.60. Ultimately though, it plans to raise as much as $210m in fresh capital.
It’s a curious concept: raising money from investors to buy bitcoin when individuals can happily buy their own coins on any number of platforms around the world, including local crypto exchanges Luno and Valr.
Asked whether bitcoin treasury companies aren’t just overhyped middlemen, Wheatley says: “There are a lot of legal entities that can’t buy bitcoin – like pension funds.”
But while pension funds are prohibited from owning bitcoin directly right now, there are no such prohibitions on them buying shares in JSE-listed companies, such as Altvest.
Steven Boykey Sidley, the co-author of Beyond Bitcoin, says that in the short term, Altvest could do well out of this strategic switch.
“They are jumping on a bandwagon which has been very successful overseas for companies like MicroStrategy and Metaplanet, and it’s a strategy that looks to have some legs in it still,” he tells Currency.
“There is probably at least a 33% upside to the bitcoin price from here, for another year at least, so there is still money to be made.”
Sidley warns, however, that over the longer term, the strategy of raising money to buy bitcoin, in the expectation that its assets will increase and thereby boost the stock price, has to come back to earth. “But if Altvest can convince people to lend them money or to buy their equity, which they use to buy a hotter asset, they can still catch part of this wave.”
Projecting the bitcoin price is a fraught task, given that there is no underlying asset upon which a valuation could rest. This has led to some wild estimates, such as that of Eric Trump, the son of the US president, who said last month that there is “no question” that the price will surpass $1m.
Sidley says a “more realistic” estimate is that of several banking analysts, who projected that the price would still reach $150,000 per coin by the end of the year. That would still be 35% higher than the current price of $111,000 per bitcoin, or R1.9m.
There are a number of potential upsides for Altvest. For one, as the first bitcoin treasury company in Africa, it has first-mover advantage in a country which is the seventh-largest user of cryptocurrencies.
“We don’t believe anyone in South Africa is going to try this for the next 12 months, at least,” says Wheatley.
Second, the potential for pension funds to invest indirectly in bitcoin through Altvest is something which Wheatley will look to capitalise on — at least until the regulator, the Financial Sector Conduct Authority, closes this avenue.
But Sidley doesn’t see retirement funds as the main market for an African bitcoin treasury company.
“I can’t really see too many pension fund trustees allowing their funds to invest in bitcoin at this point. And I imagine the regulator would try block this,” he says. “But what I do see is this being an attractive vehicle for a number of high-net-worth individuals looking to boost their exposure to cryptocurrencies and to catch the bitcoin treasury ‘flywheel’ effect.”
For sceptics such as Sasfin’s David Shapiro, bitcoin – and bitcoin treasury companies – are just a new variation on the greater fool theory.
“It’s based on the hope that down the line someone is going to pay more for it than what you paid for it. Same as gold,” he says. “The accepted way of valuing a business is to project earnings into perpetuity and discount it back to a value today. That’s intrinsic value – the present value of a future income stream.”
But with bitcoin, there are no earnings on which to base any such assessment.
“Could I stand in front of a judge and answer why I bought bitcoin and say: ‘Because everybody else bought it’,” asks Shapiro. “I can’t find a balance sheet for a bitcoin.”
While the Africa Bitcoin Corporation is a catchy name, the fact remains that there are now more than 160 bitcoin treasury companies worldwide, according to brokerage firm Peel Hunt. So why does the world need another one?
“We hear a lot about how interconnected the world is, but in certain aspects, we overestimate that interconnectedness,” Wheatley tells Currency.
Asked whether Altvest will have to keep raising money to buy more bitcoin, which sounds like an endlessly dilutive funding mechanism, Wheatley explains the concept of “mNAV” [market to net asset value], “bitcoin per share” and “bitcoin yield”.
“People pay a premium because companies have more levers to raise capital to buy bitcoin. It gets to a point where the share price is higher than the bitcoin you hold; so your share trades at $1.50 but you hold $1 of bitcoin, so if you issue more shares it’s value accretive,” he explains.
This, at least, is how it has worked out at Strategy, where the per share value of its bitcoin is lower than the company’s share price.
Wheatley says that if the metric goes the other way – in other words, if your shares trade below your mNAV — then “you buy a dollar of bitcoin for 90c, and that’s the cadence that you need to develop”.
“You can’t just go out and raise capital – you’ve got to develop a cadence of raising the capital, buying bitcoin, and waiting for the share price to go up.”
The central premise of owning bitcoin is the scarcity of the “asset”; the expectation that its price will only ever increase based on the fact that there will only ever be 21-million coins in existence, due to the complicated mining process.
But bitcoin prices have been alarmingly volatile at times, plummeting, and then soaring.
Asked about this, and the “crypto winters” that have occurred, where prices have slumped, Wheatley says that in a crypto winter, “you need to make damn sure you’ve got a proper operating business”.
“Our operating business is still growing, and that’s what we hope will see us through. Besides that, we’ve developed a stack of services from which we can use bitcoin to generate different products that will in themselves generate cashflow for the business,” he says.
It all sounds rather confusing: what exactly are Altvest investors buying into?
Wheatley says it’s more than just a JSE-listed vehicle to get exposure to bitcoin.
“The idea is that we will buy and hold bitcoin, and find clever things to do with that bitcoin. For example, use it to raise capital to deploy to SMEs. To do things that people would want to do with a valuable commodity that you can’t in your personal capacity.”
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