ASX stock of the day: DigitalX (ASX:DCC) shares surge on quarterly update

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The DigitalX Ltd (ASX: DCC) share price is surging today, up 18.33% at the time of writing to 7.1 cents a share.

DigitalX shares closed at 6 cents yesterday and opened at 6.6 cents this morning before surging to the current level. It’s been both a great month and a great year for DigitalX investors. The shares started 2020 at just 3 cents a share. That means they are up 137% year to date, and up 77% over just the past month.

So what does DigitalX do? And why the massive 18% surge today?

Who is DigitalX?

DigitalX is a company involved in the blockchain and cryptocurrency space. It describes itself as “specialising in blockchain application development and digital asset management services.” It has two primary operations: blockchain solutions and asset management.

The blockchain solutions division works with companies and organisations to ‘unlock’ the potential of blockchain. The asset management division works by allowing investors to invest in cryptocurrencies like bitcoin through a managed fund structure.

If you weren’t aware, blockchain refers to a technology that forms the ‘infrastructure’ of a cryptocurrency. It works by creating a decentralised, digital public ‘ledger’, which can be used to process cryptocurrency transactions and ownership, amongst many other potential applications.

Interestingly, DigitalX is (according to the company) also working on solutions for an upcoming re-structure of the ASX’s ageing CHESS system. The ASX has used CHESS (which stands for Clearing House Electronic Subregister System) for around 25 years now. But the ASX is working on a new system to replace CHESS based on distributed ledger technology (DLT). This is built on blockchain technology.

Why is the DigitalX share price surging today?

Today’s dramatic move in the DigitalX share price can likely be put down to an update for the quarter ending 30 September 2020, which the company released last week. There has been no major news out of the company since. 

This update was arguably very positive. DigitalX announced that the value of the company’s ‘liquid assets’ (which includes cash and cryptocurrencies) increased by $0.9 million (or 8.56%) against the levels of the previous quarter. The company notes that this was vastly assisted by the price of bitcoin rising more than 13% over the period. That helped DigitalX’s Bitcoin Fund and the Digital Asset fund return 14.11% and 23.32%, respectively, during the quarter.

Additionally, the company reported that its cash outflows decreased by 2.3% to $339,000 over the same period.

Other ventures deliver

DigitalX also announced that development of its “first DLT application” was commenced during the quarter. DigitalX expects this to be completed by early November. At that time, the company will begin commercial application. It also notes that this process has helped it “deepen the expertise of its product development team for the purpose of offering greater capabilities to customers in the blockchain consulting and development market.”

Further, DigitalX also provided an update on its xbullion venture, of which it owns a 15% stake in. Xbullion is a service offering “digitally transferable ownership of physical gold bullion”. DigitalX told investors that the product was launched in September, and has been “successful’. Thus, the company is now looking at a “roadmap of enhancements” for xbullion.

Finally, DigitalX’s management provided a positive outlook for the company going forward. It notes the recent adoption and expansion of cryptocurrency use by US payments giants Square Inc (NASDAQ: SQ) and PayPal Holdings Inc (NASDAQ: PYPL) as being extremely positive for its long-term business outlook:

Recent global entrants such as Square Inc. and Paypal Holdings have shifted the view of Bitcoin from a speculative investment and nascent technology to becoming a reliable long-term treasury asset as well as legitimised payment protocol

It’s these factors that seem to be behind the surging DigitalX share price today.

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