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How to Play the Crypto Shakeout (SQ, OSTK, ISWH, BTBT)

Any strong trend will face shakeouts as it progresses. Obvious financial or economic dynamics eventually pick up tremendous interest as they advance. When lots of people are aligned in a similar bet, the trend will face shakeout risk as it becomes increasingly vulnerable to cascading unraveling of leverage on countertrend movement.

People get overconfident and apply too much size in their positions, which opens up the potential that even a small countertrend move can set off margin calls, forced selling, and significant pain. But that has nothing to do with the overall direction of the trend.

At this point, it may well be the case that this is a good description of where we are at in the course of the Cryptocurrency bull market. That means the dip now underway could offer tremendous opportunity once it has run its course.

With that in mind, we take a look at some interesting candidates for interest into the dip, including: Square Inc (NYSE:SQ), Overstock.com Inc (NASDAQ:OSTK), ISW Holdings Ord Shs (OTCMKTS:ISWH), and Bit Digital Inc (NASDAQ:BTBT).

Square Inc (NYSE:SQ) provides payment and point-of-sale solutions in the United States and internationally. The company’s commerce ecosystem includes point-of-sale software and hardware that enables sellers to turn mobile and computing devices into payment and point-of-sale solutions.

It offers hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts Europay, MasterCard, and Visa (EMV) chip cards and Near Field Communication payments; Chip card reader, which accepts EMV chip cards and enables swiped transactions of magnetic stripe cards; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; and Square Register that combines its hardware, point-of-sale software, and payments technology, as well as managed payments solutions. 

Square Inc (NYSE:SQ) made big headlines back in October when it announced that it had purchased approximately 4,709 bitcoins at an aggregate purchase price of $50 million. Bitcoin was trading at just over $10k at the time, and it has already nearly doubled.

According to the company, Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose. The investment represents approximately one percent of Square’s total assets as of the end of the second quarter of 2020.

SQ shares are acting very well over the past five days, up about 8% in that timeframe. Shares of the stock have powered higher over the past month, rallying roughly 36% in that time on strong overall action. 

Square Inc (NYSE:SQ) pulled in sales of $3B in its last reported quarterly financials, representing top line growth of 139.6%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($2.9B against $3.8B, respectively).

Overstock.com Inc (NASDAQ:OSTK) bills itself as a an online retailer and technology company based in Salt Lake City, Utah. The stock has become a mainstay among crypto traders given its partnerships and investments in the space.

In addition, it’s also-ran e-commerce website sells a broad range of new products at low prices, including furniture, décor, rugs, bedding, home improvement, jewelry, and more. The online shopping site, which is visited by nearly 40 million customers a month, also features a marketplace providing customers access to millions of products from third-party sellers.

Overstock.com Inc (NASDAQ:OSTK) recently announced, via its tzero segment, a technology integration with Tokensoft subsidiary, Tokensoft Transfer Agent, an SEC-registered transfer agent, to support issuers using Tokensoft’s digitization and transfer agent services.

Following the integration, Tokensoft’s digital security technology will be interoperable with tZERO’s secondary trading technology, allowing securities of issuers utilizing Tokensoft’s services to seamlessly onboard and trade on the tZERO ATS, an alternative trading system (ATS) that is operated by tZERO ATS, a FINRA member broker-dealer, subject to tZERO ATS’s trading terms and due diligence.

Even in light of this news, OSTK has had a rough past week of trading action, with shares sinking something like -16% in that time. That said, chart support is nearby and we may be in the process of constructing a nice setup for some movement back the other way. Shares of the stock have powered higher over the past month, rallying roughly 31% in that time on strong overall action. 

Overstock.com Inc (NASDAQ:OSTK) generated sales of $731.7M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of -6.5% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($533.6M against $353.9M).

ISW Holdings Ord Shs (OTCMKTS:ISWH) has commercial activity now as a miner and a mining equipment producer in the crypto space, with its Proceso Pod5 Datacenter mining solution.

Designed in partnership with Bit5ive, and geared primarily for the cryptocurrency mining industry, the Pod5 Datacenter offers next-generation dynamic self-management functionality, plug-and-play operation, virtually non-existent maintenance needs, and an industry best-in-class 1.06 Power Usage Effectiveness score.

ISW Holdings Inc (OTCMKTS:ISWH) recently announced that its Pod5 unit has just been switched on and is now live, set to generate nearly $3 million in annual revenues (at current BTC pricing). That announcement was followed by news that ISWH is sharply expanding its mining resources, now in negotiations toward the purchase of an additional large number of miners (between 300 and 900) in preparation for what it calls its “coming Phase 3 expansion in mining volume”.

That expansion involves assembling, equipping, and powering up additional Pod5 units, each of which houses 300 miners and is capable of driving roughly $2.9 million in annualized revenues at current cryptocurrency market pricing. Management is targeting the acquisition of 900 new miners capable of equipping three (3) new Pod5 units, which would lead to an additional $8.64 million in annualized revenues from mining activities at current market prices.

“We have managed to stick to the basic framework of our initial plan and timeline despite some inevitable delays related to the pandemic and supply chain issues as well as availability of mining machines,” commented Alonzo Pierce, President and Chairman of ISW Holdings. “We have been able to execute and stay on our path in the larger strategic vision we put in place for our cryptocurrency segment. In line with that vision, we are now ready to invest, expand, and grow, and to start directly capitalizing on the strong investments we made starting in May of last year. This next expansion in firepower is just the start.”

ISW Holdings Ord Shs (OTCMKTS:ISWH) has demonstrated strong growth in its telehealth segment, with seven consecutive quarters of sharp sequential growth. Its most recent quarter put the company on an annual run-rate to pull in more than $1.5 million in revenues not counting what appears to be significant growth brewing in its crypto mining and mining equipment segment over coming months as it continues to scale up operations.

Bit Digital Inc (NASDAQ:BTBT) trumpets itself as the Bitcoin company dedicated to integrating resources globally for bitcoin and bitcoin mining.

It commenced bitcoin mining in early 2020 and currently operates 2,253.5 PH/S of Bitcoin Hash Rate across the entire Bitcoin network, making it one of the largest bitcoin mining companies listed on NASDAQ.

Bit Digital Inc (NASDAQ:BTBT) most recently announced a group of hosting partnerships that will expand its operations across North America. Compute North and Link Global Technologies (CNSX: LNK) are the hosting companies that are partnering with Bit Digital. This strategic move will grant Bit Digital the ability to deploy greater Bitcoin mining power to North America.

According to the release, prior to the new agreement, Bit Digital hosted 2,100 miners with Compute North. With the updated partnership, the Company will move an additional 3,000 Bitmain S17+ miners with a hashrate of 73 THs per miner during Q2-2021. This expansion is expected to bring the total hash power hosted in the U.S. with Compute North to approximately 326 PHs within Q2.

Even in light of this news, BTBT has had a rough past week of trading action, with shares sinking something like -46% in that time. That said, chart support is nearby and we may be in the process of constructing a nice setup for some movement back the other way. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -6%. 

Bit Digital Inc (NASDAQ:BTBT) recently announced revenues from bitcoin mining business was $7.91 million for the quarter ended in December 2020. In that same report, the company noted that the number of bitcoins earned from bitcoin mining business was 739.51. The net loss from discontinued operations was $0.10 million on net income of $54 and earnings per share of $0.00, compared with the net loss of $3.0 million and loss per share of $0.20 for the same period last year.

Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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