Argo Blockchain: The Next Miner Squeeze Casualty (NASDAQ:ARBK)

Yesterday, both the cryptocurrency community and the traditional stock investment world announced that the major Bitcoin (BTC-US Dollar) Miner by monthly production is facing bankruptcyEach company has its own struggles, but they cannot be overlooked. What Happened at Core Scientific (colts) and who’s next? Most of the macro headwinds Core Scientific has addressed are challenges shared by all other Bitcoin miners. Specifically, the miner has been experiencing severe margin pressure for most of his 2022 due to rising hashrates and difficulty with block rewards.

Mining profitability hit an all-time low just a few days ago. In light of the CORZ news, it’s only natural to start wondering if there will be another casualty due to margin pressure.

Argo’s poor performance

One of the publicly available Bitcoin miners that I have been telling BlockChain Reaction subscribers about to avoid For several weeks, Argo Blockchain (NASDAQ:ARBK) (ARBKL).

As you can see in the chart above, Argo was already the worst performing listed miner in the month before CORZ collapsed by about 75%. The weakness could be in response to Argo’s announcement earlier this month that he would sell 3,400 mining machines. The asset liquidation is an attempt to raise $6.8 million in cash.from Corporate PR:

As previously reported on September 9, 2022, we have seen headwinds from both natural gas and electricity prices due to geopolitical conditions in Europe and low natural gas reserves in the United States. rice field. These factors, combined with the falling Bitcoin price and increasing mining difficulty since March 2022, have reduced our profitability and free cash flow generation.

High energy prices have plagued many publicly traded miners, but Argo stands out in a bad way due to its high debt compared to other similarly sized mining businesses.

Balance sheet

A glance at the balance sheet makes it easy to see why a company needs cash. Compared to other companies in the same industry, the debt burden is large, and there is not much money left to repay.

click to enlarge

Source: Seeking Alpha

Like Core Scientific, Argo Blockchain has significantly higher debt than most of its peers. At the end of the second quarter, Argo had $53.4 million in short-term debt, $15.3 million in accounts payable, $14.9 million in total cash and accounts receivable, and only $14.4 million in earnings for the quarter.

Similarities to Core Scientific

Leading up to Core’s announcement that it would be unable to meet its equipment obligations next month, there was tea to read. It was an aggressive sale. Core sold about 75% of his BTC stack in that period, but the company’s financial peak actually occurred in April when he did. Argo also has some similarities. Added fellow bitcoin his miner Riot Blockchain (Riot) As a barometer that not all miners sold their Treasury this year:

Argo was at 2,700 BTC in March, but only 512 BTC at the end of September. Argo’s BTC sales started a little earlier than Core’s, but we’ve seen Argo’s BTC sales become more aggressive in recent months.

Argo lost 34% in July and 53% in September. Argo’s drawdown has been slower than Core Scientific’s over the past six months, but the company has run out of his BTC to sell to raise cash.

baby bond breaks

But it’s not just the company’s bitcoin treasury or the sale of the machine that are the most worrying indicators for Argo. If the market expects Argo to survive the crypto winter, I doubt ARBKL Baby Bond stock will trade at $1.51.

A 90% drop in the price of common stock is bad. However, in my view, the ARBKL stock collapse is worse from an optical standpoint. These shares are worth $25 and pay a yield of 8.75% on par. With a current share price of $12.75, ARBKL is trading at a 49% discount to face value, yielding 17.15%. Either this is a huge opportunity or a clear sign that the market thinks Argo can’t pay its bills.

short selling risk

I think Argo Blockchain is in a race against time, but experienced traders will only short after 90% net selling. Argo’s success is ultimately tied to Bitcoin. Also, according to iBorrowDesk, the number of shares available has been trending down in recent days and borrowing costs have been trending up.

Algo fundamentals look absolutely terrible, but sentiment could change once Bitcoin starts to rise and the sector returns to profitability. I believe there are some miners out there that will do better if BTC actually turns around, but if BTC sustains a bear market rally and there is a reason It is possible to propose such a move. If you’re going short ARBK, it might be wise to go long one of his higher-positioned miners as a hedge.

Overview

The biggest problem for all Bitcoin miners right now is the pressure on margins due to BTC’s low price. If you’re of the opinion that Bitcoin is falling, I think Argo Blockchain is likely to be the next miner to go public. The company has a high debt burden and high costs, has sold assets for cash, has very little BTC left to sell, and baby bonds are priced at 50% of face value. Even if Bitcoin rises, ARBK’s shares could fall due to dilution if the company decides to raise capital through a public offering. If you’re long, I sell and move on. If you want to go short, wait for the price to spike and hit the lip.