Why the crypto winter may be turning mild…
17th November 2022 |
Over the past week, the share prices of several crypto-focused companies have risen.
Crypto exchange Coinbase is up 24.2%. Crypto and fiat currency payments giant Block Inc. (NYSE: SQ) is up 27.5%, and digital-asset platform Bakkt has risen 30.6%.
Given last week’s collapse of FTX, the world’s third-largest crypto exchange, this may come as a surprise.
However, sometimes the market has a way of showing its hand.
The “crypto winter” might just have started to thaw.
A lower-than-expected inflation figure from the US Federal Reserve Bank (the Fed) last Thursday suggests that inflation is starting to cool off, leading to a return of the positive sentiment that can underpin riskier crypto stocks.
This could be a good thing for the crypto assets in the Frontier Tech Investor Buy List.
As a reminder, these are HANetf ETC Group Digital Assets and Blockchain Equity UCITS ETF (LSE: KOIP), Mode Global Holdings (LSE: MODE) and Argo Blockchain (LSE: ARB).
Firstly, KOIP is an exchange-traded fund (ETF) which tracks the Solactive ETC Group Digital Assets and Blockchain Equity Index. The index tracks a basket of 30 market leaders in the crypto industry, which you can view here.
In fact, two of KOIP’s largest holdings are Coinbase and Block Inc., coming in at 11.05% and 9.71%, respectively.
We believe both companies could benefit from lower competition in the crypto industry now that FTX has fallen by the wayside, which could push the KOIP ETF higher.
What’s more, they are showing financial strength at this time.
Coinbase has improved its operational efficiency, reducing operating expenses by 38% between Q2 and Q3 this year as it seeks to offset a moderate dip in trading volumes.
Its monthly transacting users fell from 9 million to 8.5 million between the two quarters.
For Q3 2022, Block recorded revenues of $4.52 billion, up 17% on Q3 2021. Its user base grew to 49 million in Q3 2022, up from 47 million in the previous quarter.
We’d add that KOIP has exposure to mining companies such as Riot Blockchain (NASDAQ: RIOT), Marathon Digital Holdings (NASDAQ: MARA) and Hive Blockchain (TSX: HIVE).
However, given its listing requirements, including a minimum market cap of $100 million, the fund will adjust and remain in line with the hottest crypto companies, potentially weeding out those that are stumbling.
Next, digital-asset platform Mode continues to make progress.
Last month, the company announced that, using a phased approach, it would be adding up to ten new crypto assets to its platform, including Ethereum, Solana and Polkadot.
Mode is also reducing the minimum purchase requirement of assets to £20, allowing investors to gain easier exposure to crypto.
Whilst we are aware of the steep drop in Mode’s share price over the past year, it has risen almost 20% since Monday.
Finally, crypto miner Argo Blockchain is enduring a rocky patch.
Last month, the company confirmed that a £24 million fundraising from a strategic investor would no longer go ahead, with the result that Argo might have to curtail operations.
The company has addressed claims that power supply to its two Quebec mining facilities will be cut off to save costs, saying that these are false and that the facilities will be operational for the “foreseeable future.”
If it’s some consolation, between September and October Argo’s mining revenues rose from £938,000 to £1.13 million. Margins also improved 7% month on month.
However, we’re fully aware that Argo is in survival mode, and it remains to be seen whether the company can navigate this period.
If you did need a reminder about how far crypto is integrating with the traditional finance (TradFi) system, we can take a look at recent events.
In August 2022, Coinbase secured a deal with BlackRock, the world’s largest financial asset manager. Based on the agreement, Coinbase will provide crypto trading services to BlackRock’s institutional clients.
And only this week, stablecoin operator Circle confirmed that its merchant customers will now be able to provide Apple Pay as a checkout option to their customers.
This shows the growing integration between fiat currency and crypto payment rails, which is an unstoppable trend even during the current macroeconomic climate.
We reiterate our BUY recommendations on KOIP and Mode, and our HOLD recommendation on Argo. You can find the original recommendations under the “date bought” icon in the Buy List.
Buy List update
Volex (LSE: VLX)
Volex is a global manufacturer of power and connectivity products.
Despite turbulent macroeconomic conditions, the company continues to make excellent progress.
For the 26 weeks to 2 October 2022 (H1 FY 2023) the company recorded revenues of $357.5 million. This is a healthy 22.1% increase on the corresponding period in the previous year.
Impressively, underlying operating profits increased 17.6% between H1 FY 2022 and H1 FY 2023. Net debt also dropped from $117 million to $40.1 million between the two periods.
Volex also offered a dividend per share of 1.3GBp for H1 FY 2023, remaining relatively unchanged from the previous year.
In part, the impressive figures were driven by strong momentum from electric vehicle (EV) applications (chargers and plugs), with revenues in this segment of the business increasing by 53% between the two periods.
Given the growing transition to EVs, we can only see this momentum continuing.
Volex also has exposure to markets such as artificial intelligence and industrial technology, which should benefit from an increasingly interconnected world.
It appears the wider market is just starting to realise Volex’s potential.
Between 20 October 2022 and the time of writing, its share price has increased 16.1%.
Volex is clearly on to something. You’d be hard pushed to find a profitable company this year, and the fact that it can maintain a healthy balance sheet even during these tough times is a testament to its strength. We’re confident Volex will continue to deliver value to shareholders at this time.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Trackwise Designs (LSE: TWD)
Trackwise provides printed circuit boards (PCBs), which are an essential component in the functioning of semiconductors.
In recent weeks, the company has been rocked by news regarding one of its main EV customers.
As covered in our 15 September update, Trackwise revealed that it would renegotiate a contract with the customer in question after it revealed a knockback to production volumes.
On 21 October, Trackwise revealed it had agreed a new contractual agreement with the customer, with Trackwise receiving £3.99 million in payment for its PCBs this year. Delivery of the PCBs will take place until 2023.
Despite the renegotiation, Trackwise is still looking for additional funding to offset the associated drop in production volumes. We will keep you up to date on any developments.
Nevertheless, the market has responded well to the contract renegotiations, and this has re-instilled confidence in Trackwise’s commercial prospects.
Since 20 October, Trackwise’s share price has increased by 160%, and is 19.49GBP at the time of writing.
We’re fully aware that it’s still reflecting loss of more than 91% in the Buy List.
However, we’re confident that, in time, Trackwise will be able to claw back these losses as this major contract gets back on its feet again.
We reiterate our HOLD recommendation on the stock. You can find the original recommendation here.
The Frontier Tech Investor “Top Three”
Sometimes it’s hard to decide on which stocks to invest in from our Buy List.
Below is our Frontier Tech Investor “Top Three” section showing three stocks in open BUY positions. If you’re trying to figure out what to invest in next, these are three that we think are a great place to start.
This doesn’t mean our other stocks are no good: this is just a tool to help you spot the next Frontier Tech Investor stock that could be worthy of your consideration.
Clean Power Hydrogen (LSE: CPH2): Hydrogen is touted as the future of energy. Its versatility in powering transport, heating homes and transporting energy could make it a mainstay of the UKs green energy transition. In fact, the UK is seeking to generate 35% of its energy from hydrogen sources by 2050. Clean Power Hydrogen could become one of the pillars of the hydrogen energy world with its revolutionary electrolyser technology. It has found a cheap and efficient way to extract hydrogen from water and power, and is one of the first hydrogen stocks to list on the UK markets. You can find the original recommendation here.
HydrogenOne Capital Growth (LSE: HGEN): HydrogenOne is an investment fund listed on the LSE. It provides broad, diversified exposure to several private and publicly-listed hydrogen companies, encapsulating the entire hydrogen trend. One of its main constituents is Elcogen, a market leader in the provision of hydrogen fuel cells and stacks. With the UK government injecting £240 million into the hydrogen sector as part of its hydrogen strategy, now could be an opportune moment to take a position in the stock. You can find the original recommendation here.
The HANetf Sprott Global Uranium Miners UCITS ETF (LSE: URNM): URNM is an exchange-traded fund which provides diversified exposure to the nuclear energy industry by investing in uranium producers. Uranium is an essential ingredient in the generation of nuclear energy. The index it tracks invests in giants of the nuclear energy world, including Cameco and Kazatomprom. With tailwinds behind nuclear power remaining strong in the face of rising energy prices, geopolitical conflict – and the wider green energy transition – we believe that URNM has a strong investment case. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
