DMG Blockchain: Bitcoin Volatility Distracts from a Stellar Investment Opportunity
Bitcoin and its legions of crypto-currency cousins continue to seek fair market value in the volatile world of exchange-based trading. At the same time, corporations and entrepreneurs seek to leverage the value of the underlying blockchain technology in the wider world of business and commerce.
Among them is Vancouver-based DMG Blockchain Solutions Inc. (TSX: V.DMGI, OTC: DMGGF, Forum), which is fast emerging as a potential powerhouse in the end-to-end development of such commercial blockchain applications.
In fact, DMG is already building on an already profitable foundation. It was quick to catch on to the following reality: the advent of user-controlled networks based on intrinsically trustworthy transactions and secure/private transparency offer game-changing improvements in countless financial and commercial applications.
DMG recently completed a private placement of $28 million led by Canaccord Genuity and Paradigm Capital. Combining that with proceeds from a previous funding round, DMG is a start-up with:
● $35 million (CAD) funding in place.
● extensive ongoing operations in Bitcoin mining.
● experienced software engineering team
● fraud and forensic experts with crypto experience
● several strategic partnership and joint venture agreements.
● one of the most experienced corporate teams in the blockchain ecosystem.
How Success Breeds Success
The executive team is led by pioneers from the early days of Bitcoin and blockchain, decades-deep in experience with digital commerce, software development, and network technology. The company’s global connections range from North America to Asia with deep roots in Japan, where more than half of the world’s Bitcoin trading occurs.
Board and management includes members with recent leadership roles at BitFury. This is one of the world’s largest blockchain and crypto currency mining companies. Management also has extensive experience in high-tech corporate finance, forensics, and engineering, as well as running successful publicly-traded companies.
How There’s Much More to Blockchain than Bitcoin
Already well established as a major Bitcoin mining operator, DMG offers full service diversified enterprise-grade blockchain solutions, and has achieved a number of breakthroughs in scalable blockchain advances. It has significant revenue streams with several key partnerships and joint venture agreements in place.
The importance and potential value of DMG’s diversified blockchain platform development is seen in the strategic investment by Element Fleet Management, a global leader in fleet management services. As reported in early December, 2017, Element has committed to taking an ownership stake of approximately 9.9% in DMG. The two companies will leverage this strategic alliance in developing greater efficiencies, cost savings, and new product offerings for fleet management.
As John Wall, Chief Technology Officer of Element, explains, "Blockchain technology represents a paradigm change with profound implications for fleet, where on a continuous basis organizations need to optimize the value of their mission-critical assets, manage complex supply chains, and comply with strict regulatory and reporting requirements."
The solutions that DMG creates to serve the needs of Element will have ramifications for a wide range of comparable industry verticals.
Two other recent announcements demonstrate additional primary business cases. The first is related to DMG’s industry-leading Bitcoin Mining as a Service (MaaS) hosting and leasing platform. This MaaS business model ensures DMG a steady stream of leasing revenue while providing some protection from the fluctuations of crypto currency market values. The second features an application of supply chain and logistics management that integrates smart contract execution and ecommerce transactions.
DMG’s Double-Barreled Blockchain Strategy
Mogo Finance Technology Inc., a leading innovator in digital financial services, announced last month the formation of a new subsidiary as part of an agreement with DMG “to form a dedicated joint venture for Bitcoin mining.”
Dan Reitzik, CEO of DMG, commented: “As we pursue our objective to be the global leader in Bitcoin mining hosting, we are pleased to form a new relationship with a well-established fintech company such as Mogo.”
Mogo provides value-added digital channels for traditional financial products like loans and mortgages. The company is also launching MogoCrypto, a new product to allow simplified access to cryptocurrency trading and account management for its customers.
For its own account, Mogo plans to lease from DMG a fleet of 1,000 Bitcoin mining machines, expected to begin operating in the first half of 2018. The mining hardware will reside in DMG’s state-of-the-art facilities, along with full-service operations and revenue distribution management.
Additionally, DMG and medical marijuana company Emerald Health Therapeutics just announced a joint venture called CannaChain Technologies. According to DMG, the purpose of this venture is “to develop a foundational blockchain-based supply chain management system and e-commerce marketplace for the legal cannabis industry.”
This partnership is designed to serve the needs of all relevant stakeholders including producers, distributors, shippers, government agencies, and consumers. According to Adrian Glover, DMG’s Director of Software Engineering, “Supply chain management for cannabis is an ideal use case for blockchain’s tamper-proof ledger technology.”
Because of the transparency and trust embedded in the blockchain platform for agricultural applications, DMG’s solution will provide seed-to-sale security and verification of product and provenance at every link in the chain of supply and distribution. This ensures consumer protection and truth in labeling, while automating regulatory compliance, financial fulfillment, and reporting according to smart contract stipulations.
Successful implementation of these two agreements will create industry-wide adoption potential for DMG’s blockchain solutions in two of the fastest growing new markets on the planet – crypto currencies and legal cannabis -- and in the oldest and most widespread market of human commerce -- agriculture and food production. And in time virtually all industries likely will have to integrate with these new models in order to stay competitive.
Miners in one of DMG’s facilities - February 2018
The Making of a Bitcoin Mining Major
DMG has its sights set on leading the next wave of profitable blockchain deployments in new industries, while maximizing returns from established market applications. The primary application continues to be Bitcoin mining: the process of solving the mega-math calculations required to confirm and validate individual Bitcoin-based transactions.
The client buys DMG’s hardware up-front, pays DMG a $100,000 monthly hosting fee, and accordingly then receives the Bitcoin generated. This allows DMG to scale-up quickly without a large outlay of capital, and guarantees monthly revenue not entirely tied the Bitcoin price. Yet this allows DMG to benefit in the event of a Bitcoin price appreciation from DMG’s own mines.
This MaaS business model ensures DMG a steady stream of leasing revenue while providing some protection from the fluctuations of crypto currency market values. In addition, DMG can expand or reduce its own mining activities based on current valuations or other strategic initiatives.
In this regard, the company’s BC facility has potential of up to 85 mega watts of power when it is running at full capacity. This would involve no less than 50,000 individual servers. In the interim, DMG intends to have 40 "mines" comprising 20,000 individual servers operating by Q2 of this year.
Strength Via a Diversified Blockchain Platform Management
This focus on Bitcoin mining reflects the current state of the blockchain ecosystem. But the far larger future value of the technology lies in the distribution of diversified blockchain systems throughout formal organizations and enterprises.
Indeed, some argue that blockchain has the capacity to replace formal organizations and corporations of today with decentralized, widely distributed networks of authority and control.
In this hard-to-visualize ‘unincorporated’ future, DMG is positioned in the forefront of the transitional momentum. Applications based on existing open-source blockchain software will soon deliver the benefits of blockchain to companies like Element Fleet, Mogo Financial, and Emerald Health.
Investment Summary
With prospects for value in the blockchain enterprise applications market expected to increase from $2.5 billion (USD) to $20 billion by 2025, DMG should be able to leverage current leading-edge expertise and experience into a significant share of that future market.
To this point, the company is expected to be cash-flow positive in the near-term with the intention of becoming a rare modern-day phenomenon – a self-financing start-up once it is trading. In fact, near-term revenues are expected to continue to grow exponentially, along with generous margins – as was the case in 2017.
The company therefore has a relatively tight share structure and a non-dilutive business model (as mentioned above). In the advent of positive news flow, such dynamics therefore typically translate into a powerfully ascendant share price.
FULL DISCLOSURE: DMG Blockchain Inc. is a paid client of Stockhouse Publishing.
About the Author: Marc Davis has a deep background in the capital markets spanning 30 years. He is also a longstanding financial journalist, having worked for leading digital financial news agencies in North America and in London’s financial centre. He is also a former business reporter for CBC Television.
Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.