I don’t invest in cryptocurrency. But when I see a company producing something that’s in big demand, I often feel I want to buy the shares. That’s the way I’m thinking after the latest Argo Blockchain (LSE: ARB) share price fall.
We’ve seen some crypto disasters of late. It seems a couple of cryptocurrencies have almost completely collapsed, including a so-called stablecoin by the name of terraUSD. Those are supposed to remain, well, stable. But that ambition clearly failed here.
Fears have spread to established coins like Bitcoin, which has lost 26% in the past month. The ARB share price has closely followed suit, dropping 30% over the same timescale:
Bitcoin mirror
I did not expect the ARB share price to mirror the price of Bitcoin quite so closely. I’d expect to see its shares more highly geared. By that, I mean I’d expect them to climb significantly higher than Bitcoin gains, and fall significantly lower than Bitcoin losses.
I’d predict something similar with gold miners, for example. When the price of gold rises, the profit margins from mining and selling it should improve by a greater percentage.
In these volatile times, following the ARB share price slide from its 2021 peak, I really thought Argo Blockchain would have had a more rocky ride than it has in these past weeks. Why hasn’t it?
I wonder if the negative investing sentiment of the past couple of years is turning. Instead of dumping ARB shares as soon as there’s bad news, are we seeing growing investor support?
It all comes down to a fair valuation for the stock, and I find that very hard to work out.
BTC holdings
At 31 March, the company had a stash of 2,700 Bitcoin and Bitcoin Equivalents (BTC). That was worth £93.6m at the time. On the latest price, the value stands at only £64m. Meanwhile, the company commands a market-cap of £213m, more than three times its BTC holdings.
The valuation is obviously based on Argo’s future mining stream. And the company gave us an update on that in May. In the first quarter, revenue and net income kept growing, with 470 new BTC added to make up that 31 March total.
But it’s really all about future expansion. And, as CEO Peter Wall put it, “to be a successful miner you need three components – power, miners, and capital.”
He added that Argo is growing all three, the main key to me being finance. That, though, is double-edged, as investors will want to minimise potential dilution at the same time as expanding capacity.
Will I buy ARB?
So what’s the bottom line for me? My big problem remains that I can’t get a feel for a fair valuation for ARB shares. And that’s enough to rule me out of any investment.
But if I owned the shares, I’d be encouraged by what I see as resilience in the face of all this recent crypto weakness.