Blockchain technology company Argo Blockchain (ARBK) has announced the sale a new issue of baby bonds. Argo is a bitcoin miner. NOTE this is a British company.
The company is selling 1.6 million shares, with another 240,000 available for over-allotment ($25 bonds) with a coupon of 8.25% and a maturity date in 2026.
The issue will be redeemable starting in 2023 at 102%, then 101% a year later and then at 100% thereafter.
The prospectus can be found here.
Ken ferreted this obscure issue out a few hours ago.
Does anyone really know how to evaluate this stuff?
For folks willing to take/sit on this kind of debt, one critical variable to valuate that we know but many mainstream sources don’t mention is that the BTC reward block will be halved in 2 years and 6 months.
This is a very significant development especially say if BTC was still trading in this price range. Basically BTC price would need to be over six figures by that halving point just to maintain current profit margins they may be in place now.
Essentially as more time goes forward, you will need way more and more hashing power (costs $$) + mining reward profits cut in half + you need BTC price to be higher.
I would take a preferred from NLY all day long over the above scenario.
Normally when a split happens some miners drop out due to unprofitability. Yes the reward is cut in half but it can be surprising how many miners shut down as well. No one runs at a loss for long. This is one of the flaws of bitcoin over time. The transaction fees were supposed to ramp up a lot more then they are right now. Now days only periods of very high volatility do they actually become very profitable. Otherwise they are flat long term more or less.
https://www.blockchain.com/charts/transaction-fees-usd
They rely on the whole bitcoin has to keep going up in price to keep mining revenue stable because the amount of confirmed transactions has been going down with the whole “store of wealth” meme now days. The velocity of BTC is headed down since 2019 with peaks happening during price spikes in either direction.
Now a person can spin data in anyway they want to suit their bias but bitcoin is not exactly healthy when judged from the original line of thinking 10 years ago. That is why people concentrate on BTC value in USD so much instead of success as a currency. Pretty good chance, except for periods of high volatility, bitcoin is in decline from a health perspective. The right mix of events could be quite bad for miners.
If the block reward halves, if BTC price stays stable, if the “store” story becomes the norm, trading slows down, etc… miners will start dropping out like flies when their expensive hardware runs at a loss. Only hobbyists and die hard folks will keep running. A business can not live long on hope and speculation that BTC mined at a loss will go up.
And gotta love those loan shark interest rates…
And B Riley can pick-up an additional $6 million.
If/when these miners fail, at least the legacy green power generators can be sold-off to serve a higher purpose. Lose/win deal.
Gary – nothing unusual about the possible additional $6 mil shares…. It’s a standard “green shoe option.” https://www.investopedia.com/terms/g/greenshoe.asp It’s normally considered a stabilizing amount for market activity – but more often than not it acts as an incentive for the underwriter to price the issue attractively.