Argo Blockchain (LSE:ARB) shares are on my radar again. The share price is up over 750% so far this year, the third-highest gain in the London Stock Exchange.
Argo Blockchain shares are in the limelight this week after a supportive operational update for February and an announcement that CEO Peter Wall will receive his salary in Bitcoin. This could be seen as a sign of confidence in this digital cryptocurrency.
The operational update highlighted that Argo Blockchain mined 129 Bitcoin or Bitcoin equivalent (together, “BTC”) in February, compared to 93 BTC in January. BTC mined year-to-date is now 222, and the company hold a total of 599 BTC. So what does mean for revenues?
Mining revenue increased 75% from £2.48m in January to £4.34m in February. This follows a 52% increase from December. It’s great to see such strong business momentum, but I was even more impressed to see mining margin grow to 81%. This was an already impressive 71% in January.
Mining revenue is likely to increase further, in my opinion. Argo Blockchain is expanding operations and in recent weeks announced its intent to buy 320 acres of land in Texas to build a new 200 megawatt mining facility in the next 12 months. Argo believes this will provide access to “some of the cheapest renewable energy worldwide”.
What I’m doing with Argo Blockchain shares
Most of my top share ideas are not linked to speculative assets. But I do currently own some Argo Blockchain shares. I bought a small amount in January in a speculative portion of my long-term investment portfolio. After several encouraging updates over the past few months, I would consider buying some more.
However, at an almost £1bn valuation, I’m more hesitant than I was a few months ago. The performance of Argo Blockchain shares could rely on the highly volatile Bitcoin price. Bitcoin has gained over 70% year-to-date at time of writing, but that has included two near-30% declines during the period.
Bitcoin and cryptocurrencies, in general, have gained in popularity in recent months. Aided by central bank quantitative easing that has weakened the value of fiat currencies, digital currencies have started to gain traction.
They have also been supported by some high-profile CEOs and companies making purchases. In February, Tesla announced it had bought $1.5bn of Bitcoin. Elon Musk also remarked that Tesla could one day start accepting payments with Bitcoin.
The risks
Bitcoin is highly speculative and carries great risk. In recent months, the Financial Conduct Authority (FCA) warned that investors should be “prepared to lose all their money” should their investment’s value collapse.
As such, owners of Argo Blockchain shares should be aware of the link to the Bitcoin price. It works both ways, in my opinion.
Additionally, there are technology risks. Argo Blockchain would need to keep up and stay ahead of competitors by investing in its technology. I understand that the useful life of a Bitcoin mining computer is three years, so more investment could be required over the coming years to sustain current mining efficiency.