Crypto stocks rally as Cathie Wood backing sends bitcoin back above $51,000

Crypto stocks rally as Cathie Wood backing sends bitcoin back above $51,000

Bitcoin has risen by more than 30% this year so far Dado Ruvic/Reuters

Cryptocurrency exposed companies including MicroStrategy and Riot Blockchain gained on Wednesday.

The jump coincided with bitcoin’s rally back above $51,000 after Ark Boss Cathie Wood praised the token.

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Shares of cryptocurrency-exposed companies rose in premarket trading on Wednesday as bitcoin climbed back above $51,000.

The token tumbled as low as 18% on Tuesday to $45,000 but has rallied back above $51,000 after Ark Investment boss Cathie Wood told Bloomberg Tuesday evening she remains “very positive on bitcoin,” and is “very happy to see a healthy correction here.” Payments company Square’s announcement of an additional $170 million of bitcoin also helped push the price back up.

MicroStrategy gained almost 9% early Wednesday, after closing down 21% Tuesday.

Wednesday morning the business intelligence firm run by bitcoin bull Michael Saylor announced it purchased an additional $1 billion worth of bitcoin, bringing its total bitcoin holdings to about $4.78 billion.

The $6.6 billion company run by bitcoin bull Michael Saylor now holds approximately 90,531 bitcoins.

Bitcoin mining companies Riot Blockchain and Bit Digital gained 12% and 8%, respectively. Marathon Patent rose 15%, and Ault Global rose 5%.

Meanwhile Blockchain-based e-commerce company Future Fintech gained 5%, and crypto mining hardware developer EBang was up 11%.

Why Crypto.com Coin Skyrocketed Today

Bloomberg

(Bloomberg) – Shares of the blank-check firm combining with electric-vehicle startup Lucid Motors Inc. plunged in U.S. trading after confirming the biggest SPAC merger yet to cash in on investor enthusiasm for battery-powered cars.Churchill Capital Corp IV, the special-purpose acquisition company run by financier Michael Klein, fell as much as 46% on Tuesday after confirming its merger with Lucid. The deal will generate about $4.4 billion in cash for the 14-year-old carmaker, which announced production of its debut model will be delayed to the second half of this year.The slump follows a dramatic 472% run-up in the shares since Bloomberg first reported on Jan. 11 that Lucid and Churchill were in talks. Lucid has shied away from comparisons to market leader Tesla Inc., but the public listing at a pro-forma equity value of $24 billion positions it to compete for a slice of what’s expected to become a rapidly growing market for EVs. It plans to use the newly acquired funds to bring vehicles to market and expand its factory in Casa Grande, Arizona.Traders often sell “sell on the news” after a long-rumored deal is consummated. The scope of Churchill’s decline was especially pronounced, signifying investors may also have been disappointed by the production delay or the terms of the deal. Lucid said it expects to need $600 million in bridge financing to bolster the company’s cash until the transaction with Churchill closes. The company expects negative free cash flow of around $10 billion through 2024, raising the question of how it will seek additional funds.Read More: Lucid Gives Sobering Look Under the SPAC Hood: Chris BryantThe reverse-merger represents the biggest capital injection for Lucid since Saudi Arabia’s Public Investment Fund invested more than $1 billion in 2018. The agreement included a $2.5 billion private placement in public equity, or PIPE, the largest of its kind on record for a SPAC deal. It was led by PIF as well as BlackRock, Fidelity Management, Franklin Templeton, Neuberger Berman, Wellington Management and Winslow Capital, according to a joint statement from Lucid and Churchill Capital.The placement sold at $15 a share – a 50% premium to Churchill’s net asset value – which translates into about $24 billion in pro-forma equity value, the companies said. The combined company has a transaction equity value of $11.8 billion.“I see the SPAC as just a tool, another lever to pull on, where we can accelerate our trajectory,” Lucid Chief Executive Officer Peter Rawlinson said in an interview. “This is a technology race. Tesla gets this. It’s why they are so valuable and Lucid also has the technology.”The SPAC is the largest run by Klein, a former Citigroup Inc. investment banker who has played a prominent role in guiding the Kingdom of Saudi Arabia’s investments, serving as an adviser to the PIF. Among other deals, he advised on the Saudi Aramco initial public offering.The Lucid transaction is expected to close in the second quarter.Production TargetsLucid had previously said deliveries of its debut EV, a luxury sedan called the Air, would begin in the second quarter. The company has now decided not to commit to a start date for the $169,000 car as a result of talks with Churchill Capital, Rawlinson said. It plans to eventually produce more affordable versions of the Air and a battery-electric SUV.The Casa Grande factory currently has installed production capacity for 34,000 units annually, based on three work shifts, Rawlinson said. Lucid hopes to ramp that up to capacity for 85,000 units a year as soon as 2023, after additional investments are made.Lucid forecasts deliveries of 20,000 vehicles in 2022, generating sales of $2.2 billion. It sees revenue rising to $5.5 billion and $9.9 billion in 2023 and 2024, respectively, according to a presentation made to investors posted on its website. The company foresees positive earnings before interest, taxes, depreciation and amortization of $592 million in 2024.Beyond its manufacturing capacity, Lucid expects to invest heavily in new products and will grow headcount to 5,000 over the next year, Rawlinson said.Lucid’s debut vehicle will challenge Tesla in the still-niche market for premium EV sedans. The Air model has a range of 517 miles on a single charge, based on Environmental Protection Agency estimates. It can reach zero-to-60 miles per hour in 2.5 seconds and has access to Electrify America’s network of DC fast chargers. That’s comparable with the Model S Plaid +, which has a maximum range of around 520 miles, a zero-to-60 time of less than 2 seconds and access to Tesla’s nationwide network of fast chargers.Ire of MuskThe market capitalization of Lucid is just a fraction of Tesla’s roughly $686 billion valuation, but not bad for a luxury electric-vehicle maker that has yet to deliver its first car. Rawlinson has stated repeatedly that Lucid is not a direct competitor to Tesla because his company’s price point is beyond the mass-market buyers Elon Musk aspires to reach.But there are signs of a budding rivalry.The Newark, California-based company – the headquarters of which are just 16 miles from Tesla’s in Palo Alto – says its first EV will go the distance against the longest-range Model S sedan. Lucid’s new factory arose out of the Arizona desert as fast as Tesla’s in China. And growing interest in the startup and its CEO has drawn the ire of none other than Musk.Rawlinson and Musk have a complicated history. The Lucid CEO was chief engineer on Tesla’s flagship Model S, but Musk has downplayed his role in its development and also accused him in a tweet of leaving the company “in the lurch just as things got tough” in 2012.Longer-term, Lucid is also working on energy storage solutions similar to Tesla’s Powerwall. The company wants to use the same battery technology in its cars to develop batteries to power homes and utility-scale devices and already has working prototypes, Rawlinson said.(Updates with explanation for stock slump in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

Building a Bitcoin-based business - Travala’s crypto-transactions journey

(Pixabay)

The travel industry suffered through its worst year on record in 2020, with the U.S. Travel Association calculating that the domestic travel sector lost $492 billion in revenue compared to 2019, “an unprecedented 42% decline.” Business travel bore the brunt of the damage, with losses of 60 to 70% in the US and more than 50% in Europe.

So, how is it possible for an online travel agent to be “growing rapidly,” booking more than $1 million a month and planning for “a lot of pent up demand” in less than four years?

As CFO Drew Currah tells it, Travala.com has managed to buck the ferocious economic headwinds by boldly betting on cryptocurrency to both attract tech-savvy customers looking for lower costs and reduce the friction of the travel booking and payment process.

(Weekly Coronavirus Impact on Travel Expenditures in the US, January 22, 2021 update - US Travel Association. )

Banking on blockchain, crypto

Travala was founded in 2017 by a group that combined expertise in the travel industry, blockchain platforms and fintech intending to disrupting the online travel market via a decentralized platform that reduced the friction, cost and time required to book lodging and airline tickets. Last year it merged with TravelbyBit and attracted investment from Binance, one of the world’s largest crypto exchanges, creating a global agency with access to 2 million hotels and 600 airlines.

Travala spells out the rationale for a crypto-centric travel site in a paper that also details the problems with existing travel sites and how it uses digital finance to solve them. The critical point is that cryptocurrency attracts millennials that haven’t developed set brand preferences and are in the peak of their travel years(emphasis added):

Blockchain and cryptocurrency enthusiasts are a consumer demographic which is perfectly pre-filtered for the travel market and whose make-up helps transcend many of the difficulties in consumer acquisition and marketing outreach. Research on cryptocurrency holders reveals that millennials are the primary demographic (Bogart, 2019). Research on the behavioral characteristics of millennials, meanwhile, demonstrates they are more open to new brands and services than older generations (“Millennials,” 2017) and more likely to travel (“Stats: Millennials To Travel,” 2017).

Travala’s ultimate goal is a decentralized platform that disintermediates the booking process via open APIs using blockchain technology and crypto transactions. As detailed in its white paper, the strategy targets centralized incumbents like Sabre (emphasis added):

The ‘Billion Dollar API’: Global travel technology companies like Amadeus and Sabre are ancient with low-level APIs used by basically all OTAs either directly or indirectly via third-party APIs that resell them. Their business value is that they access an enormous quantity of product across flights, hotels, rental cars, etc., and are integrated with all major stakeholders in the industry. These APIs are used because they are unified and reliable. Their purpose is to ensure everyone speaks the same language to each other, and to mediate contract disagreements. Disrupting these entrenched APIs is extremely difficult. However, if it can be done at all, the most likely usurper will be one that is built on decentralised technology. If Travala.com can create a protocol that allows each industry stakeholder – airlines, hotels, car rentals, other travel-adjacent businesses, and consumers – to interact directly, and to do so using a unified protocol (API) that is enforceable directly on the blockchain, then there will no longer be a need for intermediaries like Amadeus and Sabre. With enough traction from the early-adopters who take advantage of the lower costs enabled by disintermediation, a tipping point would be reached where industry stakeholders switch en masse to the new platform. In this scenario, the value of a common cryptocurrency would increase along with its utility.

Minimizing risk while supporting multiple fiat, cryptocurrencies

Travala accepts payment in both fiat currencies, like US and Australian dollars, as well as 35 cryptocurrencies, including a native AVA token that is tied to Travala’s rewards and discount program.

Currah says that Travala is tapping the nascent market for crypto payments and using digital finance to make cross-border transactions in different fiat currencies efficiently. Since few, if any hotel or transportation vendors accept and price in crypto, by default. Travala shows pricing in a user’s local currency, showing conversions to various fiat and crypto prices. For example, if a hotel room in Brisbane, Australia lists for AUS$200 a night, customers in the U.S. would see a rate of $173, ₿0.00324 (324,000 SATS) or 65.4 AVA.

Travala eliminates operational exposure to crypto volatility — the fiat price of Bitcoin can fluctuate ten percent in a day — by pricing in fiat in instructing its payment processor, Binance, to automatically and immediately convert crypto payments to a stablecoin like Tether or Dai. The majority of Travala’s internal crypto assets are in various stablecoins, although it recently started converting some excess cash to Bitcoin for long-term holdings.

Travala has found a growing niche with crypto-savvy travelers as 70% of its bookings are made in crypto, the majority in Bitcoin followed by its native AVA token. Travala encourages AVA usage by tying it to the company’s loyalty program, with discounts and rebates based on the amount of AVA a customer holds in their account. The highest rewards tier requires a 5,000 AVA balance (about $11,125 or ₿0.2313) and provides a five percent discount and five percent AVA reward for each booking plus two percent monthly interest (half in AVA, half on future travel credits) on the AVA balance.

Operational considerations for handling Bitcoin

As more companies investigate Bitcoin as a medium of exchange, store of value or both, Currah offers some advice for SMBs that might be overwhelmed by the detail and complexity of the MicroStrategy Bitcoin playbook I recently discussed. Aside from common sense about starting small while gaining experience using Bitcoin and its financial ecosystem, Currah says that aspiring crypto users should:

Develop a crypto strategy that covers their use cases, investment time horizon (if holding as an asset), allocation criteria (for example, a percentage of balance sheet reserves) and entry and exit trading rules; although, if convinced by Saylor’s (and others’) arguments about the Bitcoin’s long-term value (aka gold 2.0 thesis), the exit criteria might be “never.” Although they might be overkill for small organizations, MicroStrategy’s Bitcoin treasury reserve and trading policies provide a useful template for developing crypto policies.

Have an account with one or preferably more reputable crypto exchanges offering both hot (tradable accounts) and cold (long-term storage) wallets. Currah recommends considering one of the interest-bearing platforms like BlockFi, Celsius or Nexo as one of the options since these pay higher rates than conventional banks that accrue in either Bitcoin or stablecoin. Note that these generate interest by lending Bitcoin, so higher rates generally come with significantly greater risks. MicroStrategy offers a detailed checklist for evaluating and contracting with a crypto custodian. I would add that it is prudent to consider an offline hardware wallet for long-term storage as organizations gain experience and accumulate a significant amount of crypto.

Develop a process for logging crypto transactions and appropriately recording the accounting (FASB, GAAP, IFRS) and tax treatment in one’s home jurisdiction. MicroStrategy has a thorough discussion of Bitcoin accounting treatment which dictates it be held as an intangible asset.

My take

The travel industry only accounts for 3.3% of the world’s economy, but adds another seven points when considering the indirect contributions of tourism. However, efficiencies and cost savings gleaned from using digital currencies and blockchain-based transactions are significant and represent a promising opportunity for an industry that will be struggling to recapture lost business. Indeed, Currah sees “a lot of pent-up demand” with travel booking improving more quickly than expected, with projected revenue increasing ten percent per month through next year.

(Travala white paper v 3.0)

Some might see accepting Bitcoin payments as gimmick, however, it’s a lure to get younger, tech-savvy frequent travelers to first try the service and then convert to AVA tokens, which are the backbone of Travala’s decentralized strategy, backend processes and eventual AVA token economy. Indeed, Travala’s white paper bluntly explains the strategic significance of AVA (emphasis added):

AVA’s functionality makes it critical to the success of Travala.com. The interplay of AVA use cases is designed to encourage loyalty to the Travala.com platform while increasing distribution and liquidity of the token. … AVA will be at the heart of all future use cases Travala.com is pursuing. As the Travala.com consumer base continues to grow, usage of AVA is integral to their experience on the platform. With its use incentivised by valuable rewards, demand for AVA can be expected to grow in line with platform adoption, leading to the establishment of a healthy internal token economy from which all stakeholders may benefit.

With a $100 million market cap, AVA is tiny compared to Bitcoin, but has already attracted a significant following.

There is always a risk of substitutionary platforms arising that provide better pricing, user experience or integration with other sites. However, as with social networks, Travala is banking on a first-mover advantage creating network effects and a competitive moat that protects it from imitators. It will be interesting to see the evolution and adoption of Travala and others trying to build crypto-based commerce platforms as Bitcoin’s recent corporate popularity makes the general public aware of crypto currency and its uses.