The great crypto pivot

SMI Vantage — formerly known as Singapore Myanmar Investco — was for years in a mixed bag of “traditional” businesses such as logistics, auto services, construction and running serviced offices. Its other key business was to operate retail outlets in Myanmar’s airports and when the coup happened in early 2020, its businesses took a hit.

On Oct 7, 2021, the company changed to its current name to reflect its new focus, including technology-based solution-as-a-service (SaaS) and other high-tech platforms. SMI president and CEO Mark Bedingham tells The Edge Singapore that the move is the result of looking for business diversification.

“Over the past year, we have engaged in a number of conversations for this purpose, with particular interest in the New Economy. Initially, I was looking at digital marketing. At some point, we were introduced to Nasdaq­-listed The9, which at first wanted us to market a platform that would bring cryptocurrency mining capabilities to a wider audience in Southeast Asia.

“However, in September, the cryptocurrency space in China was facing lots of challenges, so we decided to expand our collaboration with The9. We said we would take the role of the cryptocurrency miner, pivoting away from our frontier markets focus. We are starting with this as well as an NFT publishing platform and we expect to announce more ventures in the coming months,” says Bedingham.

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China-headquartered The9 primarily engages in developing and operating online games and related services. Listed on the Nasdaq since 2004, the company aims to become a global diversified high-tech internet company, having engaged in blockchain businesses including the operation of mining and NFT platform, NFTSTAR.

Mining is the validation of transactions that take place on each digital asset block to generate cryptocurrencies. It is done using computer hardware that calculates complex mathematical equations. When these equations are solved, the digital asset is generated, granting miners a certain amount of block reward.

Widely known to be an energy-intensive activity, China has imposed a ban on crypto mining last year, as part of a wider clampdown on cryptocurrencies.

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On July 15, SMI announced an MOU with The9 to launch a cryptocurrency cloud mining business, focusing initially on three types of digital assets — Bitcoin, Filecoin and Chia. The mining business will be hosted in a range of facilities across Canada, the US, Central Asia and the Asean region to serve customers. The9 will also become a substantial shareholder of SMI Vantage with an investment of up to 44.3 million new shares at 3 cents each.

Acknowledging that it is a big pivot, Bedingham says SMI offers The9 transparency, presence in the Singapore market as well as marketing capabilities. “Additionally, I feel that for the company as a whole, we need to make a dramatic change to excite our investor base as well as attract new investors as we enter areas that are not already heavily populated by competitors. We feel we are ready to take this challenge and that we are able to build strong partnerships in this space,” says Bedingham.

Mining for coins

On Nov 24, 2021, SMI announced that it was acquiring 3,000 Canaan Avalon BTC Miner cryptocurrency mining machines from The9 at the price of RMB1,100 each ($233.40). The deal amounts to a total value of RMB3.3 million or $705,128.21. Aside from mining on its own, the acquisition will allow SMI to offer institutional and retail customers access to cryptocurrency mining-as-a-service (MaaS), through either full ownership, leasing or fractional time-based ownership of crypto mining machines. The service is expected to launch in the first quarter of this year.

Under the terms of the purchase order, the purchase consideration may be satisfied by either payment to The9’s subsidiary NBTC in cash or through the issuance of 7.83 million of new ordinary SMI shares to The9 at the issue price of 9 cents, credited as fully paid-up, amounting in aggregate to the value of the purchase consideration, subject to shareholders’ approval.

Bedingham describes this as a “good deal” as the company was able to purchase the machines at a competitive price. “We believe they will be fully installed by January and fully operational within the same month. To add, we have an option to buy 2,000 more machines. From that point onwards, we want to become one of the leaders in cryptocurrency mining based out of Southeast Asia,” says Bedingham.

SMI will start mining on its own before offering the MaaS service to institutional and retail customers. The machines will also initially only mine Bitcoin, before looking into other coins that are in the interest of the customers. Offering “attractive” utility pricing, SMI’s MaaS service is a way to democratise mining, allowing more people access to mining capabilities without the need to fork a huge upfront investment to secure a location and mining rigs, says Bedingham.

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One of the sites for cryptocurrency mining will be in Malaysia, in partnership with another Singapore-listed company Hatten Land. According to Hatten Land, the mining operations, which are in Malacca, will tap solar panels installed on the rooftops of its malls. “The group’s digital strategy is essentially asset-light and involves re-purposing existing physical assets in Malacca which are currently under-utilised because of the Covid-19 pandemic,” says the company on Jan 6 in response to queries from the Singapore Exchange.

Under the arrangement with SMI, Hatten Land expects to receive a share of the net proceeds of blockchain assets being mined. Aside from SMI, Hatten Land also has a similar arrangement with digital asset management company Frontier Digital Asset Management.

On Jan 11, Hatten Land announced that 80 mining rigs had been delivered and mining operations are starting this month. A total of some 2,500 rigs will be installed this year to contribute positively to the earnings and net tangible assets of the company for the current fiscal year ending June 30.

Colin Tan, executive chairman and managing director of Hatten Land, describes the commencement of the mining operations as a “major milestone” in the company’s “digital roadmap”. “As we progressively scale up our crypto mining activities, there are plans to integrate such operations with solar energy as part of our efforts on sustainability and maximisation of investors’ value,” he adds.

Hatten Land, whose main business is the development and operation of malls and other properties in Malacca, has been badly hit by the pandemic. On Dec 15, the company announced its “strategic pivot” into new areas such as renewable energy, physical-digital malls, cryptocurrency mining and the metaverse. The new businesses will add to Hatten Land’s current core business activities which includes property development, mall management and leasing, and business management and consultancy services.

Some of the other moves Hatten Land had announced as part of the strategic pivot include forming a joint venture with software company Hydra X to jointly develop and operate first-of-its-kind cryptocurrency exchanges that will list and trade newly-minted Bitcoin, eco-friendly Bitcoin wrapper tokens as well as other sustainability-focused digital assets.

Hatten Land is also working with Prakal, which operates blockchain gaming launchpad EnjinStarter, to develop “tokenomics and token systems”, aside from other partnerships to build a metaverse world, starting with a digital twin city of Malacca that will contain NFT assets.

Apart from its existing agreement with Hatten Land, SMI is also looking to work with other partners for other mining locations. Bedingham says the company will soon announce its second mining site, which will also be a Southeast Asian country.

“We are ambitious and we want to be a trailblazer in the region when it comes to the mining space. While we do not have any target as to how many machines we would acquire moving forward, we will continue to seek investor interest and continue tapping on the opportunity to scale,” says Bedingham.

Incidentally, Hatten Land’s partner Hydra-X is also a partner of VCPlus, the listed company formerly known as Anchor Resources, a granitic and gold miner that has since unveiled ambitions to be a digital asset custodian. Another listed company that has undergone a similar name change was DLF Holdings, which is now called OIO Holdings and focuses on block­chain and staking business.

From left: SMI president and CEO Mark Bedingham and Hatten Land executive chairman and managing director Colin Tan

Banking on NFTs

Powered by smart contract technology, NFTs are unique and irreplaceable units of data stored on a blockchain. Last year, NFT saw exponential interest, with sales surging to US$10.7 billion ($14.45 billion) in 3Q2021 across multiple blockchains from the US$1.3 billion recorded in the previous quarter, according to insights platform Statista.

To ride the wave, SMI is planning to develop an NFT publishing business and will be seeking digital content for publication and sale across several NFT platforms. This will allow contributors to submit their digital assets, while SMI would serve as a publisher and sign agreements with selected contributors, on top of handling auctions and trading the completed work on NFT platforms.

“The9 has already done a lot for their own platform NFTSTAR, but at the moment, they are looking at specifically sporting stars. Our intention is to work with content creators from various industries such as fashion. We will be reaching out to designers and artists, helping them to put their content on a platform and then help them market it. I will leverage my own personal connections within the fashion, music and other industries to seek for these creators,” says Bedingham.

Other locally-listed companies that have announced their interest to venture into the NFT space include concert promoter and event producer UnUsUaL as well as production studio Vividthree Holdings.

UnUsUaL announced its strategic partnership with event organiser Season Culture and a third-party angel investor to incorporate a new entity, FunBase. Both UnUsUaL and Season Culture have extensive experience and access to performing artists and talents across China, South Korea, Taiwan, Macau, Hong Kong, Malaysia and Singapore to help the venture explore multiple applications of NFTs.

In the announcement, UnUsUaL CEO Leslie Ong says the company believes NFTs will be a game changer in the live events space. In its future events, the company will have an expanded offering in the form of NFTs in various formats, such as special edition event collectibles, digital tickets, and audio-video assets. UnUsUaL will hold 30% equity interest in FunBase, with the option to increase their stake to 51% over the next three years.

Meanwhile, Vividthree announced on Nov 21, 2021, that it has raised $2.2 million by placing out 37.5 million new shares to a group of investors to fund acquisitions and new projects, including the market of NFTs. At 5.832 cents each, the placement price is a 10% discount off the last traded price on Nov 16, 2021, before a trading halt was called.

Vividthree co-founder and managing director Charles Yeo says the company decided to venture into NFT as part of its effort to continue embracing new technologies. “Over the past 20 years, even before our IPO, we went through a lot of changes. We always try to see how we can benefit from new technologies. So, when I heard about NFT, and how it could help artists and designers be credited rightfully for their work and get the chance to enjoy incremental value growth, I definitely think it makes sense to get on board,” says Yeo.

A subsidiary of SGX Mainboard-listed mm2 Asia which is also moving into the crypto space, Vividthree debuted on the Catalist board in September 2018. The company ended FY2021 with a 66.9% decline in revenue, mainly due to the adverse impact of the Covid-19 pandemic. Vividthree faced significant slowdowns in both the post-production and content production segments, with the latter nearing a standstill as most outdoor and large-scale events are prohibited by local authorities. “When we saw how we are affected by the pandemic, we knew we had to think of finding new opportunities,” says Yeo.

Vividthree launched digital collectibles of the characters from its webcomic intellectual property (IP) Silent Horror on Dec 7, 2021. The NFTs were sold on Opensea.io, the largest digital marketplace for crypto collectibles and NFTs. Proceeds from the sale will fund further development of Silent Horror, including a potential spin-off. The supernatural horror webcomic series has received over 100 million views online since February 2015.

NFT publication is just one of the projects that Vividthree has planned. The company is exploring the “limitless possibilities” in the space which includes NFT gaming, decentralised storage network as well as equipping its online Over The Top media service platform ComicVid with blockchain technology.

Last October, Vividthree announced that it was in preliminary discussions with GammaR, a company that provides a platform that helps NFT game developers bring their innovations to market. GammaR’s first joint project is with SkyArkStudios — one of the companies involved in the Binance Incubation programme — is a game called SkyArkChronicles. Yeo says he is excited about the prospects of SkyArkChronicles and hopeful that this would be the start of a few other projects in the pipeline.

On Jan 11, mm2 Asia, whose business of operating cinemas has been hurt during the pandemic, announced the impending launch of a new NFT marketplace named Metaviva for consumers to trade and store licensed digital entertainment tokens and collectibles focusing on popular entertainment and media content from the region, including keyart, audiovisual footage, music, animation, merchandise and even actual props from movies, TV series and events.

Melvin Ang, founder and executive chairman of mm2 Asia, notes that the NFT asset market today is just “a fraction” of the physical asset market. Ang notes that the market for licensed merchandise is estimated at US$291 billion globally in 2020, and expected to grow 2.2% per annum. In contrast, the global NFT market in 2020 generated transactions valued at around US$338 million in August 2021, the total value of NFTs traded crossed US$10 billion. “We believe that in the near future, the market for digital collectibles will eclipse that of the physical,” he says.

For this new venture, mm2 Asia will be receiving an investment from RHT AIDigi Financial Holdings, linked to law firm RHTLaw Asia LLP. Now privately held, RHT AIDigi Financial Holdings will be the target of a

$45 million reverse takeover deal involving SGX-listed company, Asia Vets Holdings. Under terms of the deal announced on Dec 3, 2021, Asia Vets will pay for the acquisition by issuing around 335 million new shares at 13.415 cents per share.

According to Jayaprakash Jagateesan, AI­Digi Group CEO, the company has developed a FinTech platform to reshape the capital markets to become the gateway to diverse digital assets and investments.

“The proposed acquisition will further accelerate our efforts to develop new innovative products to capture the fast-growing digital security token economy with a focus on real estate, NFTs, and environmental, social and governance investments.”

In response to queries from the SGX, Asia Vets said that RHT AIDigi has an NTA of $1.86 million. For the six months ended June 30, 2021, it generated revenue of $1.44 million and recorded a net loss of $5,000. Asia Vets will be keeping its existing veterinary operations following the completion of the RTO.

From left: Vividthree co-founder and managing director Charles Yeo and UnUsUaL CEO Leslie Ong

Further investments in the space

While companies like SMI Vantage and Vividthree have already started their blockchain and cryptocurrency ventures, others such as trading company Intraco and real estate developer Olive Tree Estates are only just announcing partnerships to enter the space.

Intraco can trace its roots as the government entity in charge of importing basic foodstuffs such as oil and rice. On Dec 22, 2021, it announced that it has entered into a binding heads of agreement (HOA) with Australian entrepreneurs Mark Carnegie and Sergei Sergienko to invest in a digital asset platform, MHC Digital Co (MHC Singapore).

Under the agreement, Intraco will pay

$10 million in cash and issue 100 million new shares in the company at 50 cents each for a 51% stake in MHC Singapore, a significant premium to the company’s last traded share price of 24 cents.

MHC Digital Group, which was founded by Carnegie, is an Australian digital asset platform with licence for related businesses in Australia. Its current primary businesses are fund management of a portfolio of digital assets and trading of a wide range of digital assets. The company intends to expand the existing fund management offering and incorporate new trading strategies including the development of traditional over-the-counter execution and market-making services as well as the provision of corporate finance advisery services.

MHC Singapore will be operating a licensed digital assets platform, subject to regulatory requirements in Singapore. Carnegie tells The Edge Singapore he believes that Web 3.0 or a decentralised version of the internet-based blockchain would represent 5% to 10% of the global GDP over the next decade, representing a huge opportunity.

“I think Singapore is uniquely positioned to be able to take advantage of that huge amount of economic growth — this is why companies are trying to explore how they are going to capitalise on it,” he adds.

Meanwhile, Olive Tree Estates has entered into a non-binding HOA with Providence Capital Management to establish a joint venture company to add capacity and redefine the “giving for impact” ecosystem through the design and development of an innovative crowdfunding platform leveraging on blockchain.

Additionally, the newly-incorporated company will also mint a cryptocurrency token which will serve as both a store of value as well as a means of exchange for donors, receivers and the platform’s community of stakeholders, the company said in a statement.

Amid increased interest among listed companies in Singapore to participate in cryptocurrency-related businesses, there are concerns regarding the viability of carrying out such businesses.

From left: AIDigi Group CEO Jayaprakash Jagateesan and mm2 Asia founder and executive chairman Melvin Ang

Viability and stakeholders’ reaction

Bryan Tan, who heads up the tech practice at law firm Pinsent Masons Singapore, says there is an increased interest among a lot of companies in Singapore towards “cryptonisation” despite having no prior experience in the areas of crypto mining, NFT publishing, cryptocurrency investments and the enablement of cryptocurrency payments.

“Then again, the area is fairly new and so no one has a significant head start. A common trend is to acquire the experience either by acquiring the talent or outsourcing. This is a common approach to venturing into any new area,” says Tan.

To make it work, there is a need for tighter risk management, says Tan. There are clearly external risks associated with the space, such as the cryptocurrency and mining crackdown in China. The volatile nature of cryptocurrencies also plays a part, with intraday dips ranging from 10% to 80% during the 2017 crash. Security risks are also present, so companies do need to figure out proper risk mitigation, he adds.

“However, as it goes with all other opportunistic trends, the early bird will take most of the worms. The followers may make some money but a lot will crash after the fad dies out and a consolidation will take place,” says Tan.

Terence Wong, CEO of fund management firm Azure Capital, says the move by listed companies to jump on the cryptocurrency and blockchain bandwagon reminded him of the dotcom boom and eventual bust. Back then, some companies even added a “dotcom” to their names despite having little to no internet-related business in the hopes that it would leapfrog their valuations.

“I do believe that some of these companies are just tapping into an opportunity to capture the imagination of investors and their dollars. Ultimately, it is about the business and not just the idea. Companies will need to be very committed and they have to understand thoroughly what they are getting themselves into.

“There is definitely a risk — I can’t say for sure what these companies know and what they don’t. But we have to look at how the new businesses fit in with their existing business, whether it makes sense overall and whether the group has any prior experience or expertise in the space,” says Wong.

According to SMI’s Bedingham, investors have reacted well to the announcements it had on the pivot. When the company signed a subscription agreement with The9 on June 30, 2021, to undertake the new business direction, for example, its share price shot up to the year’s high of 17 cents from 3.2 cents on the day of the announcement.

Similarly, Vividthree’s Yeo says he did not expect the share price to jump more than 50% in a day after it announced its business update last October and for the company to continue seeing a positive reaction from shareholders.

“This is very motivational for us because the market is reflecting that it is looking forward to what Vividthree can create. There are other companies that have announced something like us and the hype just died off because they did not create something of substantial visibility. Meanwhile, we rolled up our sleeves and got right to it.”

Will the new focus affect Vividthree’s incumbent business? Yes, but not in a bad way, says Yeo. In fact, it complements the companies’ existing skills and capabilities in production, as well as make it more resilient as it transforms itself into a digitally-ready company, he adds.

SMI’s Bedingham, on the other hand, says the company has started to gradually exit the past incumbent business to make way for the SaaS and MaaS offerings as well as other plans it has in the pipeline. This year, it has exited both the auto services and serviced offices businesses.

“We have a decent travel and retail business, which should rebound when people start to travel again but we have taken a conservative view in the frontier markets. However, we do not see ourselves strongly engaged in the rest of the businesses. In fact, we have downsized and exited some of them. For example, we were into a car rental business, which was heavily reliant on tourism. It may recover at some point, but it will take a very long time, so we have chosen to exit that business,” he explains.

Myanmar has announced that it will start reopening the country to tourists early this year. Will this spell a good outlook for SMI’s incumbent business? “Not especially, no. Our travel retail business will benefit from that over time but we are taking a cautious view. For now, we will continue embarking on our business pivot to the New Economy,” says Bedingham.

Cover photo: Bloomberg