During this year’s stocks bloodbath, I’ve steered clear of cryptocurrency shares. However, signs of a nascent recovery in crypto markets make me think now could be a good time to add some digital currency players to my portfolio. In particular, I’m looking at Argo Blockchain (LSE: ARB) shares.
With substantial Bitcoin mining operations and potential for the company to use blockchain technologies to diversify the business model in the future, let’s explore whether I should buy this stock today.
Bitcoin mining
The 2022 bear market has been brutal for crypto holders and last month was Bitcoin’s worst for over a decade. Crypto price volatility is a major risk for the company. The Argo Blockchain share price has suffered during the meltdown, falling over 60% this year.
The company owns 1,935 Bitcoin and has over 44,000 mining machines in Canada and the US. Crypto mining is essentially a validation process to confirm the authenticity of a transaction between two wallets.
The main incentives for miners are ‘block rewards’ — currently 6.25 coins per block. Due to the cryptocurrency’s fixed supply properties, Bitcoin supply will gradually tighten until a hard cap of 21m coins is reached in the year 2140.
We’re bullish long-term…we wouldn’t be in this industry if we didn’t believe in Bitcoin and believe that in the long term it’s going to continue to appreciate as an asset and continue to outperform most other assets like it’s done in the last 10 years.
Peter Wall, Argo Blockchain CEO
Despite its long-term bullish stance, there are signs the business is looking to limit downside risk. Last month, Argo Blockchain sold 637 Bitcoin — more than the 179 it mined.
The company’s been using derivatives as a risk-management tool since Q4 2021. It also recently hired a full-time derivates trader to boost its in-house capabilities.
I’ll closely monitor whether the miner returns to a net accumulation strategy if there’s a sustained recovery in the Bitcoin price.
Blockchain technologies
This year the business set up an innovation division, Argo Labs. Network participation and strategic diversification are two key aims of this new arm.
Network participation involves infrastructure support, running nodes, and staking in innovative projects to generate revenue. The company’s diversification objectives include identifying new crypto projects it believes have potential for long-term growth. These include NFTs and metaverse projects.
I believe the digital asset ecosystem presents significant opportunities beyond mining. It’s encouraging to see Argo Blockchain capitalising on this potential. While the stock will remain highly correlated to crypto prices, in my view, a diversified range of revenue streams in the space is no bad thing.
Should I buy Argo Blockchain shares?
I consider Argo Blockchain shares a high-risk investment. Accordingly, I wouldn’t deploy significant amounts of spare cash into the company, but I would like to gain some exposure to the crypto sector. After recent positive momentum in the Bitcoin price, I think a share price rally could materialise if crypto markets continue to recover.
The company has higher mining margins than many competitors, such as Marathon Digital Holdings and Riot Blockchain. Furthermore, diversification plans and a credible approach to managing risk add to the stock’s investment appeal for me. I’d buy today.
The content in this article is provided for information purposes only. It is not intended to be, neither does is 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.