So far, I have had my reservations about buying cryptocurrency-related stocks, like Argo Blockchain (LSE: ARB). This was mainly because of regulators’ concerns about virtual currencies. This in turn meant that their usage could be restricted at anytime, leaving investors high and dry.
Increasing legitimacy for virtual currencies
But times are changing. El Salvador’s government recently recognised Bitcoin as legal tender. Now I know that it is a small country, with limited economic influence. And this has not been a popular move for the country either. The World Bank, which supports development projects around the world, has declined the country’s request to assist with Bitcoin implementation.
Still, it shows that thinking around virtual currencies is changing. A few months ago I pointed out that some of the biggest names in finance like JP Morgan and Goldman Sachs were increasing their exposure to cryptos as well.
Argo Blockchain share price underwhelms
If this trend continues, it can bode well for the Argo Blockchain share over time. Right now its share price chart is underwhelming. It has seen some upward swings in the last month but it is now almost back to where it started.
I reckon this is because of the recent trend in Bitcoin prices. The virtual currency has seen little progress over the past month, after its crash in early May. Since Argo Blockchain’s mining revenues are measured in terms of Bitcoin prices, it follows that weakness in Bitcoin damages investor sentiment for the miner too. Indeed, the company’s revenues fell in May compared to the month before. The Bitcoin price was higher during April and even in March. In line with this, Argo Blockchain’s share price has more than halved over the past thee months. Of course, past performance is not an indication of future results.
My takeaway
Basically this shows that the company’s fortunes are linked with a currency that is still at a nascent stage. At this stage, it tends to be volatile because the future is unknown. China, for instance, clamped down on virtual currencies recently sending the price into a downward spin. And Elon Musk’s tweets are known to impact it. I think this would be less likely if there were stronger fundamentals in place.
At the same time, I cannot look away from the fact that over the past year, the Argo Blockchain share price has risen by over 30 times. And this is after the share price drop over the past month and a half. Also, in my mind, cryptocurrency is beginning to gain more credibility. If enough investors buy them and enough people and companies start trading them, to borrow a phrase I first heard during the 2008 financial crisis, Bitcoin may become “too big to fail”. I’m now thinking about making a tiny speculative investment in the Argo Blockchain share.