Over the last 12 months, one of the companies we have repeatedly come back to here at Insider Financial is MGT Capital Investments Inc. (OTCMKTS:MGTI).
Back at the start of the year, the company went for less than a dollar a share.
By the end of August, 2017, MGT stock was trading for $3.95 apiece – up 315% on its then year to date pricing.
During the last few months, the company has steadily depreciated and currently trades for around $2.32. We think this depreciation is an opportunity to pick up some discounted shares and, in turn, to build a position in MGTI ahead of a longer-term return to the overarching upside momentum that dominated the first half of this year.
What makes us think this?
Well, go back to October 2017 and this company was a cybersecurity play. To a large degree, it still is. The company has John McAfee at its helm, renowned cybersecurity entrepreneur and a somewhat controversial person in the sector and – at the time in question, October 2016 – was working on to primary projects – a secure smartphone and a device called Sentinel, which is a sort of network guard device designed to monitor and secure network traffic.
Then, towards the end of last year and into the early half of 2017, McAfee pivoted operations to turn the company into a cryptocurrency play. MGT bought warehouses and a huge amount of bitcoin mining equipment and, during the subsequent months, set up what is now one of the largest bitcoin mining operations in the US.
On the back of his pivot, many suggested McAfee was making a huge mistake. Back then, bitcoin was trading for around $1000 apiece and remained a technical and legal quagmire.
Fast-forward to the end of 2017, however, and the story is a different one.
Bitcoin now goes for close to $12,000 apiece and, as adoption increases, more and more money is flowing into the space. What looked like a big risk by McAfee at the end of last year has now proven to be an incredibly smart move and – as the price per coin continues to rise – the value of the company’s bitcoin holdings as well as the reward that MGT earns for every block that its mining equipment processes increases.
There’s another force at play here, as well, that draws us to this stock.
Markets are looking for bitcoin plays right now. It’s still quite difficult to buy bitcoin directly for the less technical savvy and storage is not just tough but also rife with security concerns. If you’ve got any sort of substantial holding, you don’t want to keep it online. This necessitates cold storage which, in turn, necessitates a degree of technical know-how.
In order to avoid these hurdles, traders and investors are seeking out publicly traded bitcoin stocks.
The problem is, there aren’t that many available right now. Not that many, that is, that have well-known management, an established position in the sector and that have spent the last twelve months building up an incredibly large mining facility on domestic US soil.
MGT, of course, ticks all these boxes.
We’re not saying this one’s a risk-free allocation. It’s not. It’s very risky for a number of reasons, not least because of the volatility of the underlying asset on which it rests. With that said, however, over the last few months, bitcoin has risen dramatically while MGT has fallen.
This digression could be a smart play in and of itself, in anticipation of a return to parity. Beyond that, it’s all about how far bitcoin goes and how much of it MGT’s hardware can draw out of the transaction verification process.
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Image courtesy of NullSession via Flickr
Disclosure: We have no position in MGTI and have not been compensated for this article.