Let’s face it: Bitcoin mining is a tough business. Companies spend fortunes on mining rigs that grow obsolete every two years to produce an undifferentiated product (i.e., Bitcoins). All while paying for enough electricity to power the country of Argentina. But cryptocurrency is a rapidly growing business that has made billions for early investors. As the industry matures, one company stands out to win even more: Argo Blockchain (OTCMKTS:ARBKF)
It’s an unusual choice on my part — I’m usually a “show-me” investor rather than a “tell-me” one. And the U.K.-listed Bitcoin mining company still has a mountain to climb before seeing shares rise another 10x. But with the right game plan, CEO Peter Wall could create a behemoth in the cryptocurrency space. Here’s what it would take and why Argo Blockchain might be the company to make it happen.
A $1 Billion Company with a $5 Trillion Opportunity
Wall Street has been slow to warm to cryptocurrencies. But as more companies from Tesla (NASDAQ:TSLA) to PayPal (NASDAQ:PYPL) jump in, Bitcoin and its altcoin siblings look like they’re here to stay. U.S. financials are a $5 trillion market, and cryptocurrencies will likely find a place within that ecosystem.
But the path toward that future isn’t exactly straightforward. Many of the best blockchain-related companies are either still private or tucked away as startups funded by venture capital (VC). Even Bitcoin itself remains a relatively inefficient currency that relies on third parties to batch transactions. But as Bitcoin itself goes mainstream, decentralized finance (DeFi) companies could shape the way finance works. And this is why Argo Blockchain is a company to watch.
Teasing a Dual Listing on the NASDAQ
In the short term, Argo stock could rise on technical reasons alone.
For almost a year, Mr. Wall has teased the notion of listing on the NASDAQ stock exchange. That would make his company only the third pure-play blockchain company on U.S. exchanges, and the one with the least number of flaws.
Marathon Patent Group (NASDAQ:MARA) has seen shares rise 2,000% since I first wrote about the company in August. However, the company has a history of misleading investors with alleged cases of “misrepresentation and omissions of material facts.” Investors have understandably worried about the company’s early days as a patent troll.
Riot Blockchain (NASDAQ:RIOT) has also seen shares rise amid the reinvigorated case for Bitcoin. Company shares are up 1,800%. But RIOT, too, has seen its share of issues. In 2018, the Securities and Exchange Commission (SEC) charged 20 former executives and investors for running a “classic pump-and-dump scheme.”
That makes Argo Blockchain an unusually immaculate character among Bitcoin players. The company’s executive chairman, Jonathan Bixby, went as far as to publicly warn investors about the “scams and shenanigans” of Bitcoin miners, telling people how to spot red flags.
If Argo Blockchain manages its dual London/NASDAQ listing, that could open the doors to new investments and remove the valuation gap between Argo and other Bitcoin miners.
Beating the Competition With Strategy, Not Scale
Many of Argo’s competitors have pursued acquisitions to gain scale, diluting shareholders in the process. Others like Riot and Hut 8 (OTCMKTS:HUTMF) have bought Bitcoin outright to ride its price. Neither of these strategies have created particularly durable operating earnings. Meanwhile, Argo’s CEO has remained unusually mum about the prospect of buying HIVE Blockchain (OTCMKTS:HVBTF) and other competitors. “I can or cannot comment on any possibility,” Mr. Wall said in a response to investor questions.
Instead, Argo Blockchain has remained focused on mining profitability and maintaining zero debt, a strategy that should sound like music to any crypto investor’s ears. Because, with its extra cash, Argo Blockchain has made strategic acquisitions in DeFi startups and newer cryptocurrencies like Polkadot (CCC:DOT-USD). It’s a luxury that many other mining companies can’t afford.
This is one of the strongest strategies that Bitcoin mining companies can pursue. Because while Bitcoin miners might make money in the short term, it’s the companies that create strong IP that will profit in the long run. Coinbase, a cryptocurrency exchange, was recently valued at $100 billion in private markets, or over five times larger than all Bitcoin miners combined.
There’s no guarantee that Argo’s DeFi investments will pay off. But if they do, Argo could quickly become the next $10 billion winner.
What’s Next for Argo Blockchain?
Even today, Argo remains one of the most profitable Bitcoin mining operations that money can buy. And its valuation isn’t particularly steep compared to other blockchain miners. If Argo can use its pole position and create a “killer app” — some intellectual property or a dominant platform — the company could see its stock remain strong even as Bitcoin prices retreat.
It won’t be a straightforward path. Argo’s current $1 billion valuation still represents a princely 50x price-to-sales multiple at current run-rates. And its work in DeFi startups or even Celsius Network, a cryptocurrency platform focused on lending, might not bear fruit for years. That means any stumble in Bitcoin prices will have an immediate knock-on effect on Argo’s stock price for now — something investors have already seen this week.
That means Argo Blockchain should remain a conservatively sized position for those who choose to invest. Alternatively, investors can also trade between its U.S. pink sheet listings and London-based ones. As I’ve noted before, Argo’s U.S. pink sheets often reach premiums of 30% before converging, creating a gap wide enough to sail the U.S.S. Arbitrage through. (Note: you need access on both exchanges to make this work.)
But while you’re busy making easy profits, just make sure you keep your eye out for real moves in Argo’s potential dual listing. Because the moment Argo Blockchain finally makes it onto the leading U.S. exchanges, investors will suddenly realize they have a third choice in finding the next big crypto play.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.