Bitcoin miner Argo Blockchain (LSE: ARB) has seen a stunning rise in 2021.
And UK investors who want to gain exposure to the rocketing Bitcoin price without having to buy the underlying asset are turning to Argo Blockchain in droves.
It remains one of the most viewed UK shares on Hargreaves Lansdown‘s website, and one of the companies with the highest number of shares bought and sold.
Bitcoin boom
The company has exploded into the public consciousness over the last 12 months.
So how much would a £5,000 investment in Argo Blockchain in mid-February 2020 be worth today?
I’ve worked it out. The AIM-listed company doesn’t pay any dividends. So for this calculation we’re only concerned about share price growth.
On 12 February 2020, the Argo Blockchain share price was 7.2p. Over the next nine months almost nothing happened. By 12 November, the Argo Blockchain share price was just 12% higher at 8.1p.
But that’s sometimes what happens with conviction buys. Often it takes a while for the rest of the market to catch up.
Argo Blockchain soars
Shares in Argo Blockchain started to go parabolic as the Bitcoin price climbed sharply towards the end of 2020. Because Argo Blockchain mines new Bitcoins and also holds cryptocurrencies on its balance sheet, when the value of these cryptos rise, so does the company’s market value.
So at today’s 140p share price? A £5,000 investment held for 12 months would be worth a little over £92,000.
That equates to a 1,844% rise. In Motley Fool terms, we’d call that an 18-bagger. So where could Argo Blockchain go in future? Could it multibag again?
Argo does have competition from some very large private and public American and Chinese Bitcoin mining companies. Canaan and Riot Blockchain come to mind. There’s no direct competition on the UK stock market.
Regulated future
If you believe that cryptocurrencies will be around for the long term, then Argo Blockchain is likely to continue to grow. If, however, you believe that Bitcoin will be regulated out of existence, Argo Blockchain would struggle to function.
There are other risks: Bitcoin mining gets exponentially more difficult the longer it goes on. To compete, mining companies are locked in a never-ending arms race to buy ever-more expensive machines. That means high and growing fixed equipment costs in future.
If the Bitcoin price falls — as it has done, sharply, in the past — it’s highly likely the Argo Blockchain share price will crash along with it. That said, we are in quite a different situation than the last Bitcoin boom and bust scenario of 2017.
Four years ago, Bitcoin had its first major public rocket ride. Its price jumped 19 times in a year from $1,000 to $19,650. Then it dumped hard. Over the next 12 months prices fell 80% to $3,950. Investors were crushed. What’s the difference between then and now?
I believe the previous cycle was driven by small retail investors. And that’s why sentiment deflated so quickly. The 2020–21 Bitcoin price rally has been largely driven by institutional buying.
With Elon Musk’s Tesla buying $1.5bn in Bitcoin, and the Morgan Stanley investment bank chief strategist Ruchir Sharma admitting that Bitcoin could replace the US dollar as the world’s reserve currency? I say the cryptocurrency is less likely than ever to simply disappear.