Bitcoin & Crypto Portfolio Replace; Argo Blockchain PLC Notes (NASDAQ:ARBKL)

Crypto/Bticoin

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Introduction

Housekeeping

In some respects, this text has been within the works for some time. I initially submitted it to Seeking Alpha in early January. In some respects, you can’t keep away from politics on the subject of Bitcoin (BTC-USD). The Bitcoin venture itself emerged as a response to the bailouts, cash printing and U.S. authorities abuse of the reserve foreign money following the Great Financial Crisis (2007-2009). Thus, one can not simply deny that HODL’ing Bitcoin is a type of voting along with your hard-earned financial savings, in addition to a wager towards the Federal Reserve, central banking and bureaucrats.

Since early January 2022, the politics of Bitcoin have come to the forefront internationally in lots of respects, whether or not in Canada with the trucker protest and Trudeau’s heavy-handed response, in Turkey and Argentina as a response to excessive charges of inflation, in El Salvador as that nation appears to be like to situation Bitcoin bonds, and now in Ukraine and Russia in response to the struggle between these two nations. Regardless of what you consider that struggle or politics on the whole, the facility of Western central banks to freeze the financial institution accounts of people, corporations and even Russia is eerie and on full show, and the arrival of central financial institution digital currencies will solely speed up this energy. Bitcoin, nonetheless, stands tall as a contra, dare I say, political pressure towards the powers of centralization, the intrusive energy of the State and corrupt central bankers.

Portfolio Matters

In that Original Draft, I had tried to provide readers an replace on my portfolio, with the important thing level being that I used to be decreasing my crypto holdings materially. Indeed, I did scale back my crypto holding from roughly 12% of my general portfolio down to eight%, which proved to be an excellent transfer. Had my Original Draft of this text been printed quickly after I submitted it, the timing would have been glorious. The the crypto market began to tank in earnest, earlier than I may incorporate updates. Thereafter, I acquired busy with work and, subsequent factor you understand, it’s virtually May.

In any occasion, what I can do right here on this article is 1) present an replace on my portfolio holdings, 2) notice that I stay bearish on crypto for not less than the following couple of months for causes famous within the subsequent paragraph, and three) spotlight a brand new crypto associated funding I’ve been accumulating.

With respect to my present short-term bearishness on crypto, what I had written again in January within the Original Draft (not printed) nonetheless applies:

A bear market is at all times coming in crypto and certain a mathematical certainty given the volatility of the asset class. The Fed’s want to tighten coverage is already inflicting some giant declines within the area, and a well- deliberate regulatory assault may shake out weak fingers, together with those that didn’t notice they’d weak fingers — diamond fingers can solely develop underneath the acute stress of monster drawdowns.

As 2022 progresses, know what you personal and keep away from leverage. Have ammo prepared, you’ll want to take income every so often, and acknowledge that the trail to an $100 trillion asset class worth for the area (50x from right here) won’t be easy. Amazon (AMZN) fell 90% in the course of the tech bubble within the early 2000s and only a few, together with yours really, had diamond fingers. It just isn’t simple to HODL, but when it’s a good venture with actual worth, that may doubtless be one of the best course.

I’ve chosen to take materials income in Bitcoin and Ethereum and in any other case lowered my general crypto publicity, whereas reinvesting some proceeds in numerous different layer 1 protocols. If my cautiousness is ailing timed, I might count on these different layer 1s to exceed the returns on Bitcoin and Ethereum, considerably mitigating the truth that I’ve considerably lowered my general crypto holdings.”

Blockchain Portfolio

Below is my updated portfolio, as of December 31, 2021 and as of the time of writing.

Asset Exposure Percentages

The “Other Alt-Coins” category above includes positions in, among others, Chainlink (LINK-USD) The Graph (GRT-USD), Polygon (MATIC-USD), Decentraland (MANA-USD), Luna (LUNA-USD); and Polkadot (DOT-USD).

As noted earlier in the article, I reduced my crypto exposure relative to my overall investment portfolio, but did take on more risk by investing in other layer 1 protocols such as Solana and Avalanche. (Also, I do hold stable coins which I consider cash equivalents rather than part of my crypto portfolio.)

In addition, as you can see, I have been accumulating the publicly traded “child bonds” of Argo Blockchain PLC (ARBK) (“Argo Blockchain” or the “Company“), which trade under the symbol (NASDAQ:ARBKL). I highlight this investment in more detail below.

Argo Blockchain Baby Bonds

Per its website, Argo Blockchain is a global data center business providing an efficient platform for sustainable cryptocurrency mining operations. Headquartered in London, UK, the company’s crypto mining operations are located in North America and the company is expanding its operations in Stillwater, Texas.

Per the prospectus, the basic terms of these Argo’s 8.75% Coupon Senior Notes (the “Notes“) are as follows:

Face Amount at Issue: $25.00

Original Coupon: 8.75%

Maturity Date: November 30, 2026

Shares Outstanding: 1.6 million

CUSIP: 040126203

Interest: Interest on the Notes will accrue from November 17, 2021, and will be paid quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on January 31, 2022, and at maturity.

Redemption: Argo Blockchain may redeem the Notes for cash in whole or in part at any time at its option (1) on or after November 30, 2023 and prior to November 30, 2024, at a price equal to 102% of their principal amount, (2) on or after November 30, 2024 and prior to November 30, 2025, at a price equal to 101% of their principal amount, and (3) on or after November 30, 2025, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption. In addition, Argo Blockchain may redeem the Notes, in whole, but not in part, at any time at its option, at a redemption price equal to (i) 100.5% of the principal amount plus accrued and unpaid interest to, but not including, the date of redemption, upon the occurrence of certain change of control events. See the prospectus for more details, as well as information concerning certain redemption options due to changes in tax laws.

I do like that the Notes pay a premium if they are called early, particularly since I think the current risk/reward is favorable.

Priority of Notes: The Notes are senior unsecured obligations. The Notes rank equally in right of payment with all of Argo Blockchain’s existing and future senior unsecured indebtedness and will be senior to any other indebtedness expressly made subordinate to the Notes. The Notes are effectively subordinated to all of our existing and future secured indebtedness (to the extent of the value of the assets securing such indebtedness) and structurally subordinated to all existing and future liabilities of our subsidiaries, including trade payables.

Financial Covenants: None

In short, these are uncollateralized Notes with no financial covenants. In a default situation, the Notes rank ahead of the common equity shareholders and any debt holders specifically subordinated to the Notes (currently none).

While clearly risky “junk” bonds (see pages 14-62 of the prospectus linked above for a litany of risks), at the current share price of roughly $22.50, however, the Notes offer a yield to maturity of well above 10%.

The Notes are largely a bet on Bitcoin and Argo Blockchain’s balance sheet which, of course, is leveraged to the price of Bitcoin.

At September 30, 2021, per the prospectus, Argo Blockchain’s summary balance sheet showed:

Cash and Cash Equivalents: $ 85,840,094

Total Assets: $ 345,596,346

Total Liabilities: $ 96,247,374

Accumulated Surplus: $ 58,065,505

Total Equity: $ 250,348,972

As one can see, there is CURRENTLY ample liquidity and assets to cover debt service in the near future, and the Notes mature in less than five years. Recent operational updates suggest that the Company is increasing mining production and improving operational efficiencies.

According to the most recent investor presentation, the Company HODL’s 2700 Bitcoin (as of March 31, 2022).

Full year operational results will drop around the time this article posts. Depending on the outcome, I might be inclined to add more to my position, particularly if the high yield bond route continues. As long as management acts rationally and doesn’t over-leverage the Company, these Notes should be a good investment and a good diversifier in my crypto portfolio.

Final Thoughts

The last crypto bull run mostly ended on or about November 10, 2021. While opportunities abound in the long run, it is (still) time to be cautious and selective and to have a plan should a deep crypto winter be in the cards. Of course, there will be oversold rallies along the way. I hope to trade and fade the bear market rallies, while maintaining core positions. For now, I am not fighting the Fed. Liquidity is already drying up and high yield spreads are blowing out. In the investment space, now is not the time to be a hero in my view. That said, at the current price, ARKBL bonds offer an interesting opportunity to earn a yield that keeps up with inflation and which is indirectly supported by Bitcoin.

In short, these Notes are a BUY at or below $22.50. Limit orders are absolutely necessary as these shares are thinly traded and the bid/ask spreads are typically very wide.

Cheers!