Argo Blockchain (LSE:ARB), the cryptocurrency mining business, has secured a new $25m (£18m) loan from Galaxy Digital LP. This further expands the existing relationship between the two parties as Argo Blockchain has previously negotiated a $20m (£14.4m) credit facility. In total, the firm now has access to $45m (£32.4m) of capital, using mined Bitcoin as collateral.
So what?
Seeing rising debt levels can be a sign of trouble. However, the management team intends to use this debt as fuel for operational expansion. In July, it announced that the construction of its new Texas mining facility had begun. This data centre is equipped to support up to 1,000MW of mining capacity, with 200MW expected to be operational by mid-2022.
The newly secured capital is being deployed to continue funding the development of this project. Any excess is being used to cover operating cash flow requirements.
How does this impact the ARB share price?
On the day of the announcement, the ARB share price didn’t move much. Why? Because from a long-term point of view, this new line of credit could be both good or bad news depending on external factors.
Relying on debt allows Argo Blockchain to raise additional capital without having to sell any Bitcoin reserves. So, if the price of the cryptocurrency climbs higher in the future, the firm will be in a much stronger position. However, if the price falls, the new debt and interest payments could add considerable pressure to profit margins.