The Argo Blockchain (LSE:ARB) share price is up 2,468% over 12 months. That return is all the more incredible when considering the Argo share price has fallen 63% from its February 2021 all-time high of 341p per share, all the way to 117p today. Just as a gold miner’s share price might fluctuate with the price of gold, Argo’s share price is exposed to the movements in the price of Bitcoin and other cryptocurrencies.
Argo Blockchain share price
Argo used to mine for Bitcoin and other cryptocurrencies as a service for other companies. Now, it mines for itself and keeps the coins (which are overwhelmingly Bitcoin) it receives. I wrote about Argo back in January of this year. At the time, I thought investing in Argo might be a way to get exposure to the cryptocurrency market due to its size and efficiency as a miner. However, I thought it was too expensive to buy, given the volatility of cryptocurrency prices and the risks in the space in general.
The coins Argo receives for mining are held as digital assets or sold to fund operational expenses. Argo’s balance sheet thus swells and shrinks with cryptocurrency prices. Also, it will have to sell more or fewer coins to fund its operations if cryptocurrency prices fall or rise.
Cryptocurrencies have demonstrated their volatility and risks all too clearly recently. Individual people or entities can move the price. China recently banned banks and payment platforms from providing cryptocurrency transactions, which led to a collapse in Bitcoin and equivalents. Then there are the growing concerns around the energy intensity of maintaining cryptocurrency networks, which have negatively impacted prices.Â
Sustainable crypto mining
To its credit, Argo has long acknowledged that it can do more to make its operations greener. Over a month before Elon Musk said Tesla would no longer accept Bitcoin as payment over climate concerns, Argo appointed a climate strategy advisor and had plans for clean energy-driven mining pools. It recently signed the Crypto Climate Accord and committed to a 2030 target for net-zero emissions.
Mining for Bitcoin is getting harder and less profitable. Cryptocurrency mining is the process of verifying transactions and adding new blocks to the blockchain ledger. Miners make the network work. However, every four years or so, the number of Bitcoin they receive for mining block halves–miners also collect transaction fees, but block rewards currently dwarf them. The last halving event occurred in 2020 and affected Argo by reducing the number of coins it mined per pentahash of computing power.
Since all miners have breakeven prices, a higher Bitcoin price will be required to incentivise miners to mine each time a halving happens. Or, transaction fees will have to rise to keep the miners in business. Now, Argo, as a large-scale and eventually net-zero miner, could win substantial market share and be profitable on transaction fees alone. But along the way, the company’s profits will fluctuate with the price of cryptocurrencies. A single tweet from the right person can move the Argo share price. China cracking down further or other countries taking a tougher stance on the crypto industry could be disastrous. If I wanted exposure to the cryptocurrency market, I would look at Argo. Since I’m not looking for that exposure, the current Argo share price doesn’t tempt me.