At this valuation if not now then when for MODE ?
“…as investors accept crypto is here to stay in some form, the company may soon begin to look rather undervalued…”
Digital finance pioneer Mode Global Holdings (AIM:MODE) continues to develop and pursue an ambitious strategy to expand its footprint in a cryptocurrency market becoming ever more established within the financial mainstream.
Mode is developing a seamless Bitcoin ecosystem allowing users – both consumers and businesses – to pay, earn, save, and get paid in the currency all in one place. The company is working to position itself at the vanguard of a movement to ‘help accelerate the world’s transition to a digital financial system’, which it sees as ‘a cheaper, safer and smarter alternative to card payments’, the ‘outdated underlying infrastructure that underpins global payments and loyalty systems’.
Mode is seeking to transition from a pre-revenue, development stage venture to an established company nurtured by diversified revenue streams. Founded in 2019 by a group of fintech and cryptocurrency professionals, the London-based enterprise offers the Mode app, allowing users to manage their Bitcoin holdings and investments through an exchange registered with the Financial Conduct Authority (FCA), and a Bitcoin payments service for merchants. Last February the company completed a placing worth £6m, generating funds to facilitate its unfolding strategy of extending the Mode ecosystem and ramping up spending on merchant and customer acquisition.
Introducing Bitcoin Cashback
Last October Mode began to implement a major part of that plan, launching an Open Banking payments and Bitcoin rewards solution with THG Plc, a proprietary technology platform specialising in taking brands direct to consumers. Mode’s UK customers will be given the opportunity to build a holding in Bitcoin through the company’s cardless QR code based payments method, which allows shoppers to make transactions and receive ‘Bitcoin Cashback’ immediately after payment via the Mode app.
The innovation seeks to take advantage of much increased public familiarity with QR codes following widespread use of the technology during the pandemic. Mode offers Bitcoin Cashback as an advance on traditional loyalty and cashback programmes, which often entail rewards that are hard to withdraw or slow to redeem. The system includes a checkout feature for shoppers who do not have the Mode app, leveraging Open Banking technology to allow customers to make seamless payments via their bank account, and earn instant Bitcoin Cashback at THG brands. THG shoppers checking out with Mode for the first time will receive 10pc worth of Bitcoin Cashback, and existing customers 5pc for new and repeat purchases. The initiative aims to introduce Bitcoin to new users, giving them the opportunity to build a stake in Bitcoin without taking on the risk of investing. Mode can now be found on more than 30 THG brands at checkout, including Lookfantastic, Myprotein and The-Hut.com.
A few weeks later Mode announced plans to expand Bitcoin Cashback through Q2 2022, offering a standalone affiliate product to more than 40 merchants. The affiliate scheme will allow customers to browse Cashback offers at participating retailers on the Mode app, before going to the selected retailer’s website to complete their purchase. Bitcoin will then be credited to the customer’s Mode account, Mode receiving a commission in Sterling before converting the Cashback into Bitcoin.
The UK’s first Bitcoin payroll system
Mode began rolling out another strand of its strategy in November, partnering with payroll provider PayEscape to pilot the UK’s first system allowing employees to receive part of their wages in Bitcoin. Bitcoin Payroll converts a percentage of participating employees’ pay into Bitcoin, depositing it directly into their Mode app wallet. The product gives participants the option to invest in Bitcoin month-by-month, helping them invest steadily, riding out price fluctuations. Mode positions the framework as a contribution to the #PayMeInBitcoin movement, having commissioned research finding that 76pc of UK crypto investors would be interested in an automated Bitcoin investment when receiving their salary, a proportion that increases to 81pc among 25-34 year olds. Initial pilots are currently underway: Mode entered into a partnership with ecommerce platform Heroes last month, allowing employees to take some of their monthly salary in Bitcoin.
Mode undertook further initiatives to raise its consumer profile late last year, including the waiving of 0.99pc trading fee from 17 November to the end of the year to entice potential users put off by industry fees that have touched 5pc. The company has partnered with Anthony Pompliano of the Pomp Podcast, covering topics relating to business, finance and Bitcoin, which has been downloaded more than 30 million times since its launch. And it has taken steps to address a primary concern for many prospective users: the carbon-footprint generated by Bitcoin mining. Last summer the company launched a range of initiatives to become a sector leader in terms of environmental responsibility, including signing up to the Crypto Climate Accord (CCA), a private-sector led initiative inspired by the Paris Agreement focused on developing open-source solutions to enable the decarbonisation of the cryptocurrency industry. Membership commits Mode to achieving net-zero emissions from all energy consumption related to cryptocurrency, and to prove decarbonisation by 2030. The company also became one of the first Energy Web’s new digital platform Energy Web Zero – a publicly accessible search engine for digitised renewable energy and carbon products – designed to accelerate the sector’s progress towards net zero: Mode will publish the results and insights from its use of Energy Web Zero. The company has also formed a Sustainability Committee to achieve net-zero emissions (scope 1 and 2) from its business operations.
Mindful of continued consumer wariness regarding crypto products Mode has emphasised its commitment to FCA regulation, securing an Electronic Money Institution EMI License (EMI) and FCA registration as a Registered Cryptoasset Firm under UK Money Laundering Regulations. Last autumn the company announced membership of CryptoUK, a self-regulatory digital trade association established to promote higher standards of conduct in the cryptocurrency sector, and to work with regulators to ensure consumer protection.
Earlier this month Mode refreshed its management team with the appointment of recognised Bitcoin advocate Rita Liu as CEO with immediate effect. Ms Liu held leadership roles at Asian fintech giant Alipay, for which she was UK CEO, before joining the Mode board two years ago as Chief Commercial Officer. The company also appointed Chief Technology Officer Jonathan Conway, another fintech and crypto veteran, to its executive board with immediate effect.
The long term case for cryptocurrency
As we noted in our feature on cryptocurrency last month, Mode is seeking to establish itself in a gradually maturing digital assets market. The Bitcoin ecosystem continues to weather shocks, some of which fly under the radar of the mainstream financial press, including one of the largest decreases in the global hashrate seen over the digital asset’s lifetime last year, caused by a large decrease of miners from China. There is also increasing regulatory scrutiny, and of course the currency is still liable to headline-generating price swings. But cryptocurrencies now no longer seem to operate entirely in their own alternative universe, as the technology continues to establish itself as part of the wider financial landscape.
More than a million UK investors bought Bitcoin during the pandemic, most maintaining their holdings through successive price shocks. Amidst the now customary stories of bitcoin’s sudden surges and reverses, something new has been happening, as corporate and institutional investors have quietly accumulated significant crypto stakes. Digital currencies are becoming more fully integrated into the everyday financial world, with hedge funds and high-frequency traders taking major positions, and banks beginning to offer services such as digital asset lending and custody. The first US bitcoin ETF was launched last autumn, debuting as the second-most heavily traded new ETF on record.
There is increasing evidence that bitcoin and other digital currencies are now moving in relation to the wider market, rather than simply according to variables within their own ecosystem. Early this year they fell in line with speculative and higher risk assets such as tech growth stocks, which investors offloaded in anticipation of interest rate rises. Financial historian Niall Ferguson notes the cryptocurrency investment opportunity goes beyond Bitcoin, which is just the prominent manifestation of an elegant blueprint for a self-regulating digital mode of exchange, allowing individuals to conduct exchanges and enforce ‘smart contracts’ without financial or legal intermediaries. For Ferguson ‘Decentralised finance’ – usually referred to as DeFi – opens the prospect of replacing some parts of the the world’s financial machinery with digital technologies facilitating seamless transactions. Thus far other crypto assets, even more substantial offerings like Ethereum, have been treated like speculative assets along with bitcoin.
But Ferguson suggests that ‘just as the skeptics missed the beginnings of Big Tech in the wake of the dot-com bust, so today’s crypto haters are missing the beginnings of a major disruption of the financial system in the form of DeFi.’ Echoing the case for crypto made by Mode, he suggests ‘existing global and national financial systems really are ripe for disruption’, allowing ‘intermediaries such as banks, credit card companies and money-transfer companies [to] collect sometimes extortionate fees from both consumers and merchants’, and levy ‘usurious interest rates on credit card debt or … overdraft charges slapped on by banks’. Whatever one’s personal view, the fact is that DeFi now appeals to a sufficient contingent of the financial world to make some re-engineering likely. It seems that would-be investors now have more options than simply trying to ride bitcoin’s next surge: cryptocurrencies look to be here to stay, offering opportunities for the patient stakeholder willing to back the emergence of an increasingly established financial technology.
Mode’s horizons for 2022
Much work remains for Mode to carve out a significant niche in a market in which many customers still don’t know what Bitcoin is, or are wary of its volatility. The company significantly ramped up spending in the six months to 30 June 2021, to £4.04m from £1.65m for the equivalent period the previous year, contributing to a loss of £4.34m to 30 June 2021, up from £1.87m for the period to 30 June 2020. The company’s share price has fallen from 60p to 8p over the past 12 months as it tries to make headway in a still sceptical market, and disentangle itself from movements in the price of Bitcoin.
But Mode can point to financial progress as it increases its market footprint. The company’s interims reported a move into a gross profit margin of 19pc, to £0.2m from a H1 2020 gross loss of £0.04m. Revenues increased more than twenty-fold to £0.8m (H1 2020: £0.03m) reflecting a 3,200pc growth in trading and merchant payment volumes. The company reported £5.7m cash and liquid assets of £8.3m (FY 2020: £6.2m). Total onboarded users increased by 575pc. Growth of Bitcoin under management increased by 327pc: the company’s Bitcoin treasury strategy seeks to hold the digital asset on its own balance sheet as a long-term store of generational wealth and as a protection against currency debasement. The company sought to open up new sources of capital last August, joining entrepreneurial and development stage US OTCQB Venture Market under the ticker MODGF.
Whatever the future might hold for Mode, it isn’t going to be dull. As the cryptocurrency sector matures, the company’s value may no longer be tied as closely as it has been to swings in the price of Bitcoin, waves that themselves may become less extreme as the current establishes itself in the wider financial ecosystem. As Mode continues to pursue and launch initiatives on several fronts to expand its market position, and investors accept crypto is here to stay in some form, the company may soon begin to look rather undervalued.