SMALL CAP IDEA: Argo Blockchain seizes the opportunity as Bitcoin rises

Few expected it, but bitcoin is active again.

The granddaddy of cryptocurrencies seemed close to certain death this time last year, after a slew of scandals that pushed the most speculative asset classes into submission in 2022.

But countless collapsed Ponzi schemes (see Celsius; Terraform Labs) and one high-profile fraud conviction (see FTX founder Sam Bankman-Fried) later, and bitcoin has re-emerged as the water-cooler asset class du jour.

Bitcoin’s reputation was further boosted by last week’s historic approval of spot Bitcoin exchange-traded funds in the US, paving the way for a tsunami of institutional money into the market.

Following the regulatory nod, major asset managers including BlackRock, Grayscale and Cathie Wood’s Ark Invest business turned to ETFs, bringing bitcoin directly into the US stock market for the first time in history (at least through an ETF wrapper). .

Trading volumes of all 11 newly minted bitcoin ETFs approached $5 billion on their first day, and Grayscale’s GBTC fund broke the ETF debut record by notching $2.3 billion in volumes alone.

Surprisingly to some, Bitcoin did not have a concurrent rally, although this was mainly due to the fact that it previously posted 170% annualized gains, leading to a subdued sell-the-news situation.

These Securities and Exchange Commission (SEC) approvals also came with a warning from Chairman Gary Gensler, who remains a permahawk on anything even partially related to crypto assets.

“While we today approved the listing and trading of certain spot bitcoin ETP shares, we have not authorized or endorsed bitcoin,” he stated.

The approvals “should in no way signal the Commission’s willingness to adopt listing standards for crypto assets,” Gensler noted. “Also, the approval does not indicate the Commission’s views on the status of other crypto assets under the federal securities laws, or on the current state of non-compliance of certain crypto asset market participants with the federal securities laws.”

Why would you even approve of them, you may ask?

Without going into further detail, the SEC was more or less strong-armed by the US courts, which called Gensler’s decade-long campaign against Bitcoin market-traded securities “arbitrary and capricious.”

Huzzah for US investors who aren’t smart enough (or risk tolerant enough) to download a crypto wallet and hold bitcoin on the blockchain for free, but what about UK investors?

Unfortunately – and somewhat ironically given Britain’s supposedly more liberal approach to cryptocurrency than the US – the Financial Conduct Authority maintains a ban on ETFs dealing in ‘unregulated transferable crypto assets’.

As Laith Khalaf, head of investment analysis at AJ Bell, explained: ‘US ETFs are not available for sale in Britain because they do not issue a Key Investor Document, so fund groups would have to launch funds specifically for Europe or Britain. market.’

The tide may be changing as UK regulators catch up, leaving few options for UK investors seeking exposure to the bitcoin markets through traditional financial routes.

Few, but not none.

London-listed bitcoin miner Argo Blockchain Technologies presents an intriguing small-cap, bitcoin-adjacent play.

Bitcoin miners use huge server farms with highly specialized computers to keep the bitcoin network running and receive bitcoin payouts in return.

The more a bitcoin miner contributes to the network, the more bitcoin he receives. This makes bitcoin mining stocks a popular proxy for bitcoin itself.

Argo’s share price rose 170% year-on-year to 32p earlier this month, mirroring Bitcoin’s performance almost to the extreme.

Argo took advantage of the opportunities presented by the rally and conducted a £7.8m equity round at a 24% discount on January 8, with shares falling to 15.5p from the 15th.

Will Argo skyrocket again if, as many suspect, Bitcoin has a bullish year ahead? There is a good chance that this will happen, but not definitively.

Massive working capital needs, debt considerations, regulatory uncertainty and even adverse weather conditions all play a role in Argo’s valuation metrics.

Too tangential for you?

UK investors can benefit from a bitcoin ETF listed on the Deutsche Börse thanks to the ETC Group’s Physical Bitcoin Fund (BTCE), which the London Stock Exchange has just made available through its multilateral trading facility Turquoise Europe.

For all intents and purposes, this allows UK investors to invest in a physically backed, unleveraged bitcoin ETF, despite the lack of approval from domestic regulators.

Of course all for a fee.

Or you can just go old school and hold bitcoin directly on the blockchain. This requires a good dose of technical knowledge, but you can save thousands of euros on management costs.

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