Carlos Velásquez · Medium · 11 min read · Source: pixaba.com cocoparisienne

While writing the article “4 Crypto Mining Stocks Positioned To Outperform Bitcoin in 2021”, I came across 18 additional publicly-traded cryptocurrency mining/blockchain sector companies.

Investors would categorize most of them as “penny” stocks.

These stocks, however, share similar characteristics found in the four mining companies I wrote about:

• They provide diversified (geographical/cryptocurrency/software) exposure to the nascent but growing blockchain ecosystem.
• Some of these companies are increasing their hashrate capacity, thereby providing shareholders with convex return potential.
• Some of these companies’ share prices have increased by more than the appreciated value of the digital currencies they mine.

These blockchain technology stocks, as such, could be of interest to investors implementing strategies that carve out a small allocation for “moonshots” — speculative investments that possess asymmetric risk-reward potential.

One such strategy is the barbell portfolio construction approach to investing.

Barbell Investing With Moonshots: A Quick Recap

“If you know that you are vulnerable to prediction errors, and if you accept that most ‘risk measures’ are flawed, because of the Black Swan, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative. Instead of putting your money in ‘medium risk’ investments (how do you know it is medium risk? by listening to tenure-seeking ‘experts’?), you need to put a portion, say 85 to 90 percent, in extremely safe instruments, like Treasury bills — as safe a class of instruments as you can manage to find on this planet. The remaining 10 to 15 percent you put in extremely speculative bets, as leveraged as possible (like options), preferably venture capital-style portfolios.” ~Nassim Taleb, The Black Swan

The barbell investment strategy is more often used by bond investors who choose to omit bond durations of one-to-20 years from their portfolios. They, instead, invest in longer-term but higher-yielding bonds and shorter-term but lower-yielding bonds. The omission of mid-yielding bonds ensures that they do not get stuck with subpar yields for longer than a year.

For stock investors, a barbell investment strategy might consist of a 10% to 15% portfolio allocation into moonshots; the remainder of the portfolio is allocated to cash and/or cash-equivalents.

Since moonshot investments are unlikely to pan out, investors that implement a barbell investment strategy make hundreds — if not thousands — of such bets as part of their 10% to 15% portfolio allocation.

When moonshot bets do pan out, however, the profits they generate can exceed the initial investment by 10x to 100x, or more.

I have written about these types of asymmetric payoffs:

• Bill Ackman’s $2.6 billion Big-Short
• Bitcoin and Moonshots | Roll Your Luck
• 4 Crypto Mining Stocks Positioned To Outperform Bitcoin 2021

Investing in moonshots using a barbell investment strategy represents an inexpensive systematized method for investors to reap the benefits of asymmetric risk-reward exposure in their portfolios. It enables them to incorporate “cheap optionality” — i.e. exposure to option-like returns without incurring theta (the loss in the value of an option over time) — in their portfolios.

By investing in moonshots, long-term investors can effectively take a page out of Bill Ackman’s 2020 investment playbook without having to incur the cost of buying, renewing, or incorrectly timing the purchase of options/swaps. (Moreover, the Credit Default Swap strategy Ackman implemented in 2020 was not available to small investors.)

The elegance of the barbell investment strategy lies in its simplicity: the downside risk of the moonshot portion of the portfolio is bound, while its exposure to convex returns is not.

The same cannot be stated for other types of investment strategies.

Let us take a cursory look at the 18 blockchain technology stocks that might make sense for barbell investment portfolios and other like-minded investment strategies.

1. Argo Blockchain Plc. (ARB-LN / USA: ARBKF)

COMPANY DESCRIPTION: “Argo Blockchain operates a hosted mining business, partnering with reputable hosting facilities like GPUone. Argo has access to 35MW of power that they use to mine Bitcoin and Equihash. In 2018 Argo became the first crypto-mining service provider to gain admission to the main market of the London Stock Exchange through a standard listing. The company was founded in 2017 and is headquartered in London.” ~ Hashrate Index

2. Bitfarms Ltd. (BITF-CV / USA: BFARF)

COMPANY DESCRIPTION: “Bitfarms owns and operates Bitcoin mining farms in Canada. Bitfarms operates five facilities in Quebec, Canada all powered off 100% renewable energy with an average electricity cost of 4 cents kWh. Bitfarms raised a debt round in 2019 from Dominion Capital. The company operates a proprietary monitoring and ASIC management platform. The company was founded on October 11, 2018, and went public on the TSXV in 2019.” ~ Hashrate Index

3. Bitcoin Services, Inc. (USA: BTSC)

COMPANY DESCRIPTION: “In 2016 Bitcoi“In 2016 Bitcoin Services Inc. secured a facility and Bitmain Antminers S7s. In addition to mining Bitcoin, Bitcoin Services Inc. also started mining Litecoin, Dogecoin, and Ethereum. The Company provides bitcoin mining services, escrow services for bitcoin buyers and sellers, and the development and sale of blockchain software to the consumer.” ~ Hashrate Index

4. XTRA Bitcoin, Inc. (USA: CBTC)

COMPANY DESCRIPTION: “XTRA Bitcoin operates a 2.5MW site used for self mining M20s machines in Ontario. XTRA has direct access to another 7.5MW substation. XTRA Bitcoin also acquired 70% of the RINK facility that can host a few dozen rigs and the option of an additional 1.5MW. XTRA mining went public through a reverse merger in 6–25–2019.” ~ Hashrate Index

5. CryptoStar Corp. (CSTR-CV)

COMPANY DESCRIPTION: “CryptoStar Corp is a mining company that started by acquiring a number of facilities in Canada, Iceland, and the USA in 2017. In Aug-2020 announced that they signed an LOI to host 2.5 MW of mining capacity at its first Alberta site.” ~ Hashrate Index

6. Ebang International Holdings, Inc. (USA: EBON)

COMPANY DESCRIPTION: “Ebang was established in January 2010. The main business is divided into two categories: telecommunication services and ASIC sales. Ebang’s first entry into mining was manufacturing devices for Canaan. Ebang works with both TSMC and Samsung for chips. Ebang also has a hosting business which accounted for 15% of revenues last year. Ebang went public in June 2020.” ~ Hashrate Index

7. Hut 8 Mining Corp. (HUT-CT / USA: HUTMF)

COMPANY DESCRIPTION: “Hut 8 is a Bitcoin mining company in Canada. Hut 8 used to have an exclusive relationship with Bitfury for equipment in Canada but in 2020 renegotiated the agreement, lowering their operating costs, and giving them autonomy to purchase from other manufacturers. Hut 8 runs Bitfury BlockBoxes and Whatsminer equipment representing 107 MW of operating capacity in Drumheller and Medicine Hat, Alberta. They have historically partnered with Genesis Global Capital for debt funding. Hut 8 uses smart response systems to turn off low-efficiency machines during times of lower mining profitability. In Jan-2018 the company became public on the Toronto Stock Exchange through a reverse merger.” ~ Hashrate Index

8. Integrated Ventures, Inc. (USA: INTV)

COMPANY DESCRIPTION: “Integrated Ventures started mining in 2017 and currently mines Bitcoin, Litecoin, and Ethereum. they host their machines at PetaWatt in New York and are partnered with Wattum for custom firmware.” ~ Hashrate Index

9. Link Global Technologies, Inc. (USA: LGLOF)

COMPANY DESCRIPTION: “Link Global Technologies was founded in Jan-2018 to mine cryptocurrency and provide all-in hosting services to third parties. Link has 2MW of miners located in Oregon and hosts machines in British Columbia. In Mar-2020 Link announced that they had secure 50MW of power in Alberta for mining and has signed an LOI to host a client for the first 3 MW.” ~ Hashrate Index

10. MGT Capital Investments, Inc. (USA: MGTI)

COMPANY DESCRIPTION: “MGT Capital first began mining Bitcoin in September 2016. In the following year’s MGT launched facilities in Sweden, Ohio, and Colorado but in 2019 consolidated all mining activities into their owned facility in Georgia, where they have access to 20MW of power. They now own and operate 1,500 Bitmain Antminer S17s SHA256 mining rigs totaling 80 PH/s. The miners are housed in five modified shipping containers including two manufactured by Bit5ive.” ~ Hashrate Index

11. Taal Distributed Information Technologies, Inc. (USA: TAALF)

COMPANY DESCRIPTION: “Taal is a mining firm mostly specializing in Bitcoin SV. Their prop mining arm started in May 2019 when they acquired Freschette from Calvin Ayre’s 270PH located in Kazakhstan. In May 2020, following the BSV block reward halving Taal spun down its proprietary mining arm. They now do hosting services which they entered into in Nov 2019 when they acquired CoinGeek, an affiliate of Calvin Ayre, hosting approximately 3EH. The company was rebranded to TAAL on December 11, 2019, from Squire Mining.” ~ Hashrate Index

12. BitFrontier Capital Holdings, Inc. (USA: BFCH)

COMPANY DESCRIPTION: “BitFrontier is a crypto mining company that began construction in 2018. They undertook the construction of the facility themselves so the process took two years to complete. In Nov-2020 the facility was completed and ready for miners.” ~ Hashrate Index

13. Canaan, Inc. (USA: CAN)

COMPANY DESCRIPTION: “Canaan is a China-based computer hardware manufacturer. Established in 2013, Canaan specializes in Blockchain servers and ASIC manufacturing. Initially, Canaan mainly developed FPGA products based on the SHA-256 algorithm. After that, it released Avalon Blockchain ASIC. Canaan only produces SHA-256 based ASICs. They have worked with SMIC, Samsung, and TSMC in the past and are currently working with TSMC on the 5nm latest-gen rigs. Canaan also has a division that works on AI products. Canaan went public on NYSE in Nov-2019.” ~ Hashrate Index

14. Coin Citadel (USA: CCTL)

COMPANY DESCRIPTION: “The mining division of Coin Citadel was started in January 2018 in Plattsburgh NY. Coin Citadel also has a Cloud mining division that has been operational since 2015. They have additional access to 80 Mega Watts of power for expansion at another leased facility in Illinois.” ~ Hashrate Index

15. DMG Blockchain Solutions, Inc. (DMGI-CV / USA: DMGGF)

COMPANY DESCRIPTION: “DMG Blockchain Solutions is a diversified cryptocurrency and blockchain platform company that is focused on the two primary opportunities in the sector — mining public blockchains and applying permissioned blockchain technology. DMG operates a mining farm and hosting site in BC, Canada. They designed and built their own 85MW substation. DMG developed its own proprietary mine management software which provides real-time data on all mining operations. In Feb-2018 the company became public on the Toronto Stock Exchange through a reverse merger.” ~ Hashrate Index

16. Strategic Asset Leasing, Inc. (USA: LEAS)

COMPANY DESCRIPTION: “On September 17, 2020, announce a Letter of Intent to acquire a cryptocurrency mining data center including the building, infrastructure, and all mining hardware. The hardware is a mix of SHA256, Scrypt, and Ethash.” ~ Hashrate Index

17. Northern Data AG (NB2-GY)

COMPANY DESCRIPTION: “Northern Data merged with US-based mining farm, Whinstone in 2019. The company engages in Bitcoin mining and hosting as well as High-Performance Computing (HPC). Northern Data most notable hosts Japanese conglomerates, SBI, and GMO in their facility. In late 2019 the company renamed Northern Bitcoin to Northern Data. Northern Bitcoin went public in April 2015 in Germany.” ~ Hashrate Index

18. Skychain Technologies, Inc. (SCT-CV)

COMPANY DESCRIPTION: “Skychain Technologies acquired MiningSky, a mining hosting company in 2018, and started in the mining hosting game. In early 2020 they raised a financing round to start the development of a 12MW farm in Manitoba, Canada expected to go live in Nov 2020. In Aug-2020 they signed an LOI to purchase a 20MW facility in Quebec.” ~ Hashrate Index

Investing As Little As 0.01%

As in any rapidly emerging sector, the winners of the blockchain technology ecosystem will be hard to identify ahead of time.

This fact alone makes the blockchain technology sector intriguing for investors looking for moonshot bets.

Allocating as little as 0.01% to 0.1% of a portfolio into individual stocks belonging to the blockchain technology sector can make sense, particularly for investors implementing a barbell investment strategy.

Small bets could go a long way.

Dare I say, “to the…moon?!”

Author also wrote: N. Taleb’s Minority Rule | Your Inner Voice | Bitcoin’s Volatility | Blockchain Stocks | 50 Investment Lessons | Flywheel Effect | Bitcoin: Mental Framework | 4 Crypto Stocks | Bitcoin: Insurance | Brief History: Money | Spontaneous Order | Ackman’s $2.6B Moonshot | Fragility Inducing Events | Antifragile: Definition | 1% Bitcoin: 99% Cash | COVID-19: Market

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Disclaimer: Topics covered herein are for informational purposes. Before acting on investment information consult with a financial professional. This article is intended for people who understand the pro/con impacts of tail-risk, convexity, and asymmetric risk-reward in the context of an investment portfolio. The price of cryptocurrencies, and of the stocks associated with the companies that mine them, will likely remain volatile.