​Q1 $6m bitcoin spend sees Digital X remain profitless

Australian-listed Digital X has posted another quarterly loss, seeing the former bitcoin miner remain profitless since it went public in 2014.
Written by Asha Barbaschow, Contributor

Digital X has released its quarterly activities report for the three months to September 30, 2016, reporting a $473,000 operating loss.

Revenue for the ASX-listed firm came in at $6.09 million, down 60 percent year-on-year, with the company attributing the revenue lull to a number of factors, including the volatile exchange rate of bitcoin during the quarter.

Another factor Digital X attributed to its revenue drop was the hack cryptocurrency exchange platform Bitfinex experienced in early August.

It emerged at the time that the loss from the hack was an estimated 119,756 bitcoins -- the approximate equivalent of $65 million. As a result, Bitfinex customers had to share the loss, with each copping a generalised loss percentage of 36.067 percent.

"The hack of two bitcoin exchanges saw the decision to suspend all post-paid customers and suspend Market Making operations," Digital X told shareholders Tuesday.

For the quarter, Digital X spent nothing on research and development, but spent $6.6 million on the purchase of bitcoins for the company's liquidity desk.

Digital X emerged in October last year after DigitalBTC, trading as Digital CC, underwent a name change and shift in business model.

Digital X raised AU$3.5 million to fund the development and rollout of AirPocket last year, its app-based cash remittance product. After rebranding, Digital X announced its focus would be on the AirPocket platform, saying that the new name and direction represented a strategic change from a focus on bitcoin as a mechanism in order to store value to a focus on software development.

"The bitcoin side of the business has been invaluable for the company to gain development expertise in blockchain-based applications that are truly differentiated from the market," the company said Tuesday.

"The development of AirPocket applications will see the company achieve success with its patent pending intellectual property."

Looking forward, the fintech firm wants to focus on AirPocket, which achieved a 5,000 user milestone in Q3.

Although Digital X is based in Perth, AirPocket is not available in Australia.

For the 2016 financial year, Digital X posted a net loss of $3.4 million and told shareholders the improvement over FY15's $6.8 million loss was driven by the appreciation in the value of bitcoin of $1.3 million, optimisation and divestment in the bitcoin mining operations, and the strong growth in its liquidity desk revenue.

2017's first quarter loss means the company is yet to post a profit since landing on the Australian Securities Exchange (ASX) in June 2014, via a reverse takeover of investment firm Macro Energy.

Digital X chairman and co-founder Zhenya Tsvetnenko announced his resignation in July, with the company telling shareholders Tsvetnenko would "relinquish" his executive role to pursue "personal interests".

Tsvetnenko, along with two others, has been accused by prosecutors in the United States for scheming customers with unsolicited text messages, according to Reuters.

"The matter is before the court, and Mr Zhenya Tsvetnenko will be defending all allegations against him," Evelyn Duffy, a spokesperson on behalf of Tsvetnenko, told ZDNet.

Other board changes occurred at the same time, with non-executive director Brett Mitchell stepping down from the board, but remaining as a corporate advisor; and Leigh Travers joining the board as executive director.

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