It’s been a tough week so far for Argo Blockchain (LSE:ARB). The share price started the week at 53p, but has moved lower, trading down 9.2% to 47.2p yesterday. There are a couple of main drivers behind this move, both of which are making me think twice about potentially buying the dip. Here’s what’s going on with Argo Blockchain shares right now.
Poor May results
The first reason behind the slump in the short term was disappointing results. In a May operational update, it noted that only 124 Bitcoins were mined in the month, down from 166 in the previous month. It blamed this on higher difficulty in mining Bitcoin during the period, also citing high temperatures in Texas. The heat meant that it had to reduce operations due to the high energy overload.
Another point worth flagging is that at the end of May, the inventory stood at 2,379 Bitcoins or crypto alternatives. Given the dismal performance of Bitcoin in recent months, the holding value of these coins is depreciating, even from the previous report last month. This is similar to gold mining stocks, which are impacted when the gold price moves lower.
Both notes from the May report I think are negative for Argo Blockchain shares, hence the slump seen yesterday.
A soft week for crypto
The second reason for the fall is that the crypto sector is taking a hit as well. The Bitcoin price is down 5.1% over the past 24 hours, at the time of writing, with other cryptos down by a similar amount. Although there doesn’t appear to be any specific catalyst behind the fall, I think it’s a continuation of poor sentiment in the sector at the moment.
This hurts Argo Blockchain shares in a couple of ways. The first way I’ve alluded to already. The value of the coins being mined will be worth less as the price falls. This has a direct impact on revenue for the business. The second element is that investors will be less likely to want to buy shares in crypto-related stocks. If sentiment is negative, people are more likely to favour what’s hot at the moment, such as oil and energy stocks instead.
A subjective viewpoint on Argo Blockchain shares
The company does have some good initiatives in play at the moment. The partnership with ePIC Blockchain on designing crypto-mining rigs could yield long-term results. During May, mining officially began at Helios. Despite the weather issues, this does mark the beginning of a large up-scaling in operations.
On the flipside, the current market cap of £244m does look rather large considering revenue for May was just £3.1m. Argo Blockchain shares will also continue to be at the mercy of the crypto sector in general. If Bitcoin slumps for another few months then I struggle to see Argo outperforming.
On balance, I just can’t find enough impetus for me to buy Argo Blockchain shares right now.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.