Over the last 12 months, the Argo Blockchain (LSE:ARB) share price has exploded by a staggering 2,200%! But since February this year, the stock has taken quite a tumble, falling by nearly 60%. So, is there a problem brewing behind the recent downward trajectory? Or is this volatility an opportunity to buy shares at a discount?
The ARB share price versus mining performance
Last week, Argo Blockchain released some fairly lacklustre results in its September operation report. During the month, a total of 165 Bitcoin or equivalents were successfully mined. However, this is actually down from 206 in the month before and 225 in the month before that.
Consequently, revenue generated in September actually fell by 19.4% to £5.5m compared to August. That also places it lower than the £5.6m generated in July this year. Seeing revenue suffer is certainly not a pleasant sight. But thanks to the price of Bitcoin increasing over the three-month period, the impact of reduced mining volumes seems to have been largely mitigated.
A slowdown is not exactly a good sign for this high-growth stock. And seeing the ARB share price suffer as a result is not exactly surprising to me. But it’s worth noting that Bitcoin prices have recently improved even further. Since the start of October, they’re up by around 20%. This indicates that the next operational update could see the return of growth. And if Bitcoin can continue to climb over the long term, the ARB share price could see some explosive growth once its new Texas mining facility comes on-line. Having said that, I remain sceptical.
The risks that lie ahead
The first time I reviewed this business, my biggest concerns were its dependence on the underlying price of Bitcoin and regulatory intervention. So far, Bitcoin prices appear to be moving in the firm’s favour. But the regulatory environment is getting heated.
Last month China placed a complete ban on all cryptocurrency transactions within the country. The reasons provided varied from the environmental impacts of cryptocurrency mining to preventing illegal activities such as money laundering. Personally, I believe this move was more to do with retaining control over its financial system. Regardless, this decision has effectively decimated the use of these digital assets within one of the largest economies in the world.
In the meantime, Gary Gensler, the chairman of the US Securities and Exchange Commission, has started actively pushing for new regulations. While I doubt a ban is likely, additional restrictions in another world-leading economy could have a tangible impact on Bitcoin’s future (and the price of ARB shares).
The bottom line
Despite what the recent movement of the share price would suggest, the business has been making good progress on expanding its operations. However, its fate is ultimately tied to that of cryptocurrencies. And at the moment, it’s unclear whether these digital assets will continue to thrive in a regulated environment. And if unable to do so, then Argo Blockchain’s revenue stream could evaporate very quickly. Therefore, I remain untempted by the growth prospect and will continue to keep this business on my watchlist for now.