Could crypto stocks Coinbase and Argo Blockchain soar in 2022?

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Bitcoin hit a record £50,000 high in November, but has fallen to under £35,000 today. And as cryptocurrency goes mainstream, it's coming under increasing regulatory pressure.

Source: Bloomberg

 

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Cryptocurrency is a divisive topic. Unlike fiat currency, which is regulated by state governments, a central feature of crypto is that it is decentralised. This means that no one individual or organisation can determine the worth of any specific coin. That makes cryptocurrencies difficult to manipulate, but equally hard to stabilise through periods of volatility.

Some believe that the next generation of the internet will be built on cryptocurrency blockchains. Accoring to the Financial Conduct Authority, at least 2.3 million British investors own some crypto, and institutional investors hold 4% of the world’s Bitcoin supply. El Salvador has officially adopted Bitcoin as an official currency. And Mastercard and PayPal are both allowing customers to buy cryptocurrencies on their platforms.

Others think the asset class is the 21st century’s tulip bulb. The Bank of England has warned that Bitcoin could become ‘worthless’ and investors should be prepared to lose everything. Last month, the creators of a crypto named after Netflix's ‘Squid Game’ stole $3.4 million from investors in an apparent ‘rug pull’ scam. The coin is now worthless.

And it’s far from the first time investors have lost money on the unregulated asset class. Elon Musk can tweet about the latest canine coin and send it into the stratosphere. But as investors in Dogecoin found out earlier this year, it can come down just as fast.
But by investing in crypto stocks, it’s possible to enjoy some of the gains with less of the volatility. Of course, as crypto is still unregulated, these companies still comes with a high level of risk.

Crypto stock: Coinbase shares

Coinbase offers a secure online platform for buying and selling hundreds of cryptocurrencies. It launched its Initial Public Offering in April at $328 per share, valuing the company at $86 billion. Rising swiftly to $342, its share price fell to $220 by 19 July. Since early November, it’s swung between $357 and $238. Right now, the US’s largest crypto exchange is worth $261 a share. But it’s unlikely to stay still for long.

Q3 2021 results presented a mixed picture for investors. Monthly transacting users fell from 8.8 million to 7.4 million, while trading volume fell from $462 billion to $327 billion quarter-over-quarter. However, a year ago it only had 2.1 million users trading $45 billion. Similarly, revenue fell from $2.03 billion to $1,24 billion quarter-over-quarter. But revenue was only $287 million in Q3 2020.

The context of these results is important. It explained that with ‘global crypto spot trading volumes declining 37% in Q3 as compared to Q2, Coinbase outperformed the market with total trading volumes of $327 billion, a 29% decline in the same period.’ Moreover, the company’s net margin was a fantastic 57% over the first three quarters of 2021.

As for the future, management has warned investors that ‘our business is volatile. Coinbase is not a quarter-to-quarter investment, but rather a long-term investment in the growth of the cryptoeconomy.’

Source: Bloomberg

Argo Blockchain share price

Like the mythological ship that aided Jason on his quest for the golden fleece, Argo Blockchain is after a 21st-century gold alternative. Shares were worth around 3p in February 2019 but had soared to a record 282p on 19 February 2021. However, it’s fallen back into penny stock territory at 96p today.

In Q3 results, Argo called itself ‘a global leader in sustainable cryptocurrency mining and blockchain,’ generating record revenue of £19.3 million and mined 597 Bitcoins or Bitcoin equivalents. CEO Peter Wall said that ‘this quarter has been pivotal as Argo continues to scale.’ By the end of November, the Company owned 2,317 Bitcoin or Bitcoin Equivalents. Moreover, it has maintained a gross margin of 120% and an industry-leading mining margin of 85%.

In July, Argo started building its new Texas-based renewable energy-focused 200-megawatt mining facility. In September, it agreed to buy 20,000 Bitmain Antminer S19J Pro machines for the facility, which have the potential to nearly quadruple the company’s mining capacity. It also listed itself on the NASDAQ, allowing the miner to better tap into financing on both sides of the Atlantic.

The miner’s stock price is strongly tied to the value of Bitcoin. And while the world’s most well-known crypto has had a stellar year, scholars will note that Jason was eventually killed by one of the Argo’s beams, when it fell on him as he slept.

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Charles Archer | Financial Writer, London
30 December 2021 02:12