Over the past year, Argo Blockchain (LSE: ARB) shares have been on an incredible run, increasing in value by 1,740%. But in recent months, the shares have been moving downwards. Currently, the Argo Blockchain share price is less than half of what it was in February.
With that reduced entry point, should I now add the shares to my portfolio? Here I consider what is going on with the Argo Blockchain share price and what could happen next.
Speculative frenzy
I actually think it’s ironic that the Argo Blockchain share price has tumbled since February, because the company’s business results have improved strongly since then. In January, for example, it mined 93 Bitcoin or Bitcoin Equivalent and held around 501. In its most recent operational update, by contrast, the company revealed that it mined 165 Bitcoin or Bitcoin Equivalent last month and now owns 1,836, despite having sold some.
That improved performance is no lucky coincidence. The company has been growing its mining capacity. With more capacity comes more volume and hopefully greater efficiency. Indeed, the company has been raising substantial funds for its aggressive expansion. Last month it raised around $128m of gross proceeds from an issue of American Depositary Shares.
Back in February, the high Argo share price reflected a speculative feeding frenzy that left some investors fearful of missing out on the stock. But in the months since then, as Argo’s share price has moved down, its business performance has actually become a lot more compelling in my view. That brings additional risks, though: issuing more shares dilutes existing shareholders, for example. That could happen again to fund further growth. But I actually like the Argo business strategy and performance now more than I ever have done.
The Argo Blockchain share price and external factors
Nonetheless, one key challenge remains for the shares, in my opinion. They are seen by some investors as a proxy form of investing in cryptocurrency itself. That helps explain why the Argo share price broadly follows moves in the Bitcoin price. But Bitcoin pricing is something over which the company has no control. So, arguably the key variable in valuing Argo shares has nothing to do with the company. As we have seen, crypto can suddenly experience wild swings in price. Those can be negative as well as positive.
Arguably that’s true for other companies. For example, Shell basically has no control over the price of oil, but if it nosedives then the Shell share price likely follows. So, why does this make me nervous when it comes to crypto and Argo but not as much for oil and Shell? In short I feel oil is far less speculative than crypto. Oil can rise or fall in price, but I expect it to be in wide use and a valuable resource for coming decades. It’s not clear whether that’s true for crypto.
That makes Argo too speculative for my risk tolerance. While I think the company performance is improving and I am warming to the story, I still won’t be adding Argo to my portfolio.