Why Digitalx Ltd shares just rocketed to an all-time high

The Digitalx Ltd (ASX:DCC) share price has been a big mover on Tuesday after announcing a return to the cryptocurrency market place as a market maker…

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The Digitalx Ltd (ASX: DCC) share price has been one of the biggest movers on the market on Tuesday.

The blockchain technology company's shares are up a massive 30% to an all-time high of 30 cents in early trade.

What happened?

The market has responded positively to the company's decision to return to the cryptocurrency market place as a market maker on approved cryptocurrency exchanges.

According to an announcement out of the company this morning, its board has approved the use of up to $1 million to provide liquidity to both sides of the cryptocurrency market while maintaining a small new open position in the asset being traded.

This means that DigitalX will maintain bid and ask limit orders below and above the spot price. Management expects this to produce its best results for DigitalX when price volatility is high.

CEO Leigh Travers advised that: "We wound down our trading desk last year due to a lack of funding, however, our strong financial position, together with the appreciation in the value of Bitcoin, has allowed us to reignite this service."

At present DigitalX holds $18 million in liquid assets, this includes $5 million in cash, over $10 million in Bitcoin, and approximately $2 million in Ether.

Should you invest?

With approximately 401 million shares outstanding, DigitalX now has a market capitalisation of $120 million.

While its strong cash balance may help justify this valuation, its revenues are certainly not as of yet. During the last quarter DigitalX generated revenues of approximately US$214,000 from corporate advisory fees and US$11,000 from referral fees.

If market making can generate strong revenues then I'll happily reconsider DigitalX, but for now I feel it is overvalued. As a result, I would rather invest in tech companies with sizeable revenues such as Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of ACONEX FPO and Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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