As investors have started to mark down the price of many tech shares, it is little surprise to me that Argo Blockchain (LSE: ARB) has seen its shares tumble. Indeed, after falling 20% in today’s trading session, at the time of writing this article, the Argo Blockchain share price is 27% lower than a year ago.
Is this a buying opportunity for my portfolio? Or could it simply be a sign of worse things to come for Argo shareholders?
Crypto exposure
The company operates data centres, which are focussed on mining cryptocurrencies like Bitcoin. It also mines crypto itself. I think most of the investor enthusiasm about Argo over the past couple of years has centred on its own crypto mining efforts rather than the business potential of leasing space in its data centres to other users. I reckon the data centres could provide helpful revenue streams, though. That does not necessarily rely on them being used just to mine crypto. Data centre demand in general has seen strong growth in recent years and I expect that to continue.
Crypto pricing has been highly volatile recently. I also expect that to remain the case. As investors have worried about falls in crypto pricing, those concerns have hurt the Argo investment case. Its own mining operation and crypto assets are affected by crypto valuations. As Bitcoin pricing slides, the Argo share price will likely follow.
Growth costs
On top of that, Argo has been investing to scale its business. It is constructing a big new data centre in Texas. The growth plans have added costs to the business and Argo has issued debt to help fund them. There is also a risk that to raise more money in future, the company will issue more shares. That could dilute existing shareholdings.
The financial case for expansion hinges on crypto pricing. If crypto values crash, the data centre could turn out to be an expensive white elephant. On the other hand, if prices recover or improve, the data centre might help Argo scale its business profitably.
Political risks
Yet another factor weighing on the Argo share price is the growing number of countries banning crypto mining. If that leads to price falls, I see it as bad for Argo.
But I think it could also be an opportunity. If the US allows mining to continue while some other countries ban it, the Texas facility could prove to be a competitive advantage for Argo.
My next move on the Argo Blockchain share price
The sheer variety of risks that are weighing on miners including Argo indicate the risky nature of investing in Argo.
Risks can sometimes bring opportunities and indeed reward. I think the Texas facility could help boost the company’s mining output. Depending on crypto pricing, that could help its future profitability. I also like the company’s expertise in data centre business, which as a business model I do not think relies solely on crypto pricing.
But the quickly shifting political risks involved mean I am wary of buying more Argo shares, even after the recent price falls. Argo shares are being strongly affected by the price volatility of crypto, over which the company has no control. For now, I plan to keep holding my Argo shares — but not to increase my position.