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

Introduction

Housekeeping

In some respects, this text has been within the works for some time. I initially submitted it to Searching for Alpha in early January. In some respects, you can’t keep away from politics in the case of Bitcoin (BTC-USD). The Bitcoin undertaking itself emerged as a response to the bailouts, cash printing and U.S. authorities abuse of the reserve foreign money following the Nice Monetary Disaster (2007-2009). Thus, one can’t simply deny that HODL’ing Bitcoin is a type of voting together 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 the world over 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 seems to be to difficulty Bitcoin bonds, and now in Ukraine and Russia in response to the warfare between these two nations. No matter what you consider that warfare or politics on the whole, the ability 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 drive towards the powers of centralization, the intrusive energy of the State and corrupt central bankers.

Portfolio Issues

In that Authentic Draft, I had tried to present readers an replace on my portfolio, with the important thing level being that I used to be decreasing my crypto holdings materially. Certainly, I did scale back my crypto holding from roughly 12% of my total portfolio down to eight%, which proved to be a superb transfer. Had my Authentic 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 might incorporate updates. Thereafter, I received busy with work and, subsequent factor you already know, it’s virtually Could.

In any occasion, what I can do right here on this article is 1) present an replace on my portfolio holdings, 2) word that I stay bearish on crypto for a minimum of 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 Authentic 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 massive declines within the area, and a well- deliberate regulatory assault might shake out weak fingers, together with those that didn’t notice they’d weak fingers — diamond fingers can solely develop underneath the intense strain of monster drawdowns.

As 2022 progresses, know what you personal and keep away from leverage. Have ammo prepared, make sure you take earnings now and again, 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% throughout the tech bubble within the early 2000s and only a few, together with yours actually, had diamond fingers. It isn’t straightforward to HODL, but when it’s a good undertaking with actual worth, that may possible be the most effective course.

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

Blockchain Portfolio

Under is my up to date portfolio, as of December 31, 2021 and as of the time of writing.

Asset Publicity Percentages

The “Different Alt-Cash” class above consists of positions in, amongst others, Chainlink (LINK-USD) The Graph (GRT-USD), Polygon (MATIC-USD), Decentraland (MANA-USD), Luna (LUNA-USD); and Polkadot (DOT-USD).

As famous earlier within the article, I lowered my crypto publicity relative to my total funding portfolio, however did tackle extra danger by investing in different layer 1 protocols equivalent to Solana and Avalanche. (Additionally, I do maintain secure cash which I take into account money equivalents moderately than a part of my crypto portfolio.)

As well as, as you’ll be able to see, I’ve been accumulating the publicly traded “child bonds” of Argo Blockchain PLC (ARBK) (“Argo Blockchain” or the “Firm“), which commerce underneath the image (NASDAQ:ARBKL). I spotlight this funding in additional element beneath.

Argo Blockchain Child Bonds

Per its website, Argo Blockchain is a worldwide information middle enterprise offering an environment friendly platform for sustainable cryptocurrency mining operations. Headquartered in London, UK, the corporate’s crypto mining operations are situated in North America and the corporate is increasing its operations in Stillwater, Texas.

Per the prospectus, the fundamental phrases of those Argo’s 8.75% Coupon Senior Notes (the “Notes“) are as follows:

Face Quantity at Situation: $25.00

Authentic Coupon: 8.75%

Maturity Date: November 30, 2026

Shares Excellent: 1.6 million

CUSIP: 040126203

Curiosity: Curiosity on the Notes will accrue from November 17, 2021, and shall be paid quarterly in arrears on January 31, April 30, July 31 and October 31 of every 12 months, commencing on January 31, 2022, and at maturity.

Redemption: Argo Blockchain might redeem the Notes for money in complete or partially at any time at its possibility (1) on or after November 30, 2023 and previous to November 30, 2024, at a value equal to 102% of their principal quantity, (2) on or after November 30, 2024 and previous to November 30, 2025, at a value equal to 101% of their principal quantity, and (3) on or after November 30, 2025, at a value equal to 100% of their principal quantity, plus accrued and unpaid curiosity to, however excluding, the date of redemption. As well as, Argo Blockchain might redeem the Notes, in complete, however not partially, at any time at its possibility, at a redemption value equal to (i) 100.5% of the principal quantity plus accrued and unpaid curiosity to, however not together with, the date of redemption, upon the prevalence of sure change of management occasions. See the prospectus for extra particulars, in addition to data regarding sure redemption choices as a consequence of adjustments in tax legal guidelines.

I do like that the Notes pay a premium if they’re known as early, significantly since I believe the present danger/reward is favorable.

Precedence of Notes: The Notes are senior unsecured obligations. The Notes rank equally in proper of fee with all of Argo Blockchain’s present and future senior unsecured indebtedness and shall be senior to every other indebtedness expressly made subordinate to the Notes. The Notes are successfully subordinated to all of our present and future secured indebtedness (to the extent of the worth of the belongings securing such indebtedness) and structurally subordinated to all present and future liabilities of our subsidiaries, together with commerce payables.

Monetary Covenants: None

Briefly, these are uncollateralized Notes with no monetary covenants. In a default scenario, the Notes rank forward of the frequent fairness shareholders and any debt holders particularly subordinated to the Notes (presently none).

Whereas clearly dangerous “junk” bonds (see pages 14-62 of the prospectus linked above for a litany of dangers), on the present share value of roughly $22.50, nonetheless, the Notes supply a yield to maturity of properly above 10%.

The Notes are largely a wager on Bitcoin and Argo Blockchain’s stability sheet which, in fact, is leveraged to the value of Bitcoin.

At September 30, 2021, per the prospectus, Argo Blockchain’s abstract stability sheet confirmed:

Money and Money Equivalents: $ 85,840,094

Whole Property: $ 345,596,346

Whole Liabilities: $ 96,247,374

Gathered Surplus: $ 58,065,505

Whole Fairness: $ 250,348,972

As one can see, there may be CURRENTLY ample liquidity and belongings to cowl debt service within the close to future, and the Notes mature in lower than 5 years. Latest operational updates recommend that the Firm is growing mining production and enhancing operational efficiencies.

In response to the newest investor presentation, the Firm HODL’s 2700 Bitcoin (as of March 31, 2022).

Full 12 months operational outcomes will drop across the time this text posts. Relying on the result, I is perhaps inclined so as to add extra to my place, significantly if the excessive yield bond route continues. So long as administration acts rationally and does not over-leverage the Firm, these Notes ought to be a superb funding and a superb diversifier in my crypto portfolio.

Ultimate Ideas

The final crypto bull run principally ended on or about November 10, 2021. Whereas alternatives abound in the long term, it’s (nonetheless) time to be cautious and selective and to have a plan ought to a deep crypto winter be within the playing cards. After all, there shall be oversold rallies alongside the way in which. I hope to commerce and fade the bear market rallies, whereas sustaining core positions. For now, I’m not preventing the Fed. Liquidity is already drying up and excessive yield spreads are blowing out. Within the funding area, now is just not the time to be a hero in my opinion. That mentioned, on the present value, ARKBL bonds supply an fascinating alternative to earn a yield that retains up with inflation and which is not directly supported by Bitcoin.

Briefly, these Notes are a BUY at or beneath $22.50. Restrict orders are completely essential as these shares are thinly traded and the bid/ask spreads are sometimes very broad.

Cheers!