Warren Buffett famously described Bitcoin as “probably rat poison squared“. But how can I ignore it, after it soared eightfold over the past 12 months. And what about Argo Blockchain (LSE: ARB)? The Argo Blockchain share price has climbed a massive 3,400% in a year. Well, I have actually ignored the Argo story so far, but it’s silly not to take a look, right?
But first, this seems like a perfect time to remember those key words of investing caution: Past performance is not a guide to future results. I know that from experience. I lived through the dot com boom around the year 2000. And I watched speculative Internet stocks crash by 90% and more when the bubble burst.
Argo Blockchain is a cryptocurrency miner. It invests its cash in the computers to mine Bitcoins, and the energy to run them. According to Cambridge University researchers, world Bitcoin mining is consuming around 121 terawatt-hours per year, more than the whole of Argentina. Even at that cost, it’s still a profitable operation with Bitcoin priced at around $55,000 per coin.
What drives the the Argo Blockchain share price?
Argo told us that in March it “mined 165 Bitcoin or Bitcoin equivalent (together, “BTC”) compared to 129 BTC in February“. That brought in £6.57m in mining revenue for the month, after accounting for crypto prices and exchange rates. March took the total for the quarter to 387 BTC, with the firm holding 764 BTC at the end of the month.
What are we looking at from an investment perspective? If I bought Argo Blockchain shares, I’d see it as an investment geared-up from the price of cryptocurrencies. So if crypto prices rise, I’d expect the profit margin for Argo to be boosted even more. Similarly, should prices fall, I could see Argo’s profits falling faster. And then I see the Argo Blockchain share price geared up even further by the enthusiasm of investors who see a bright future for cryptocurrencies.
Right now, Argo Blockchain’s profits are clearly tied to cryptocurrency prices. That is way too speculative for me, as I see no way of guessing at a rational long-term valuation. It would simply be a gamble for me, and I don’t do that.
The future of blockchain technology
But, I do think we’re only just scratching the surface of blockchain technology. And we could see many more uses for it in the coming years. So maybe in future the Argo Blockchain share price could be driven by other flavours of blockchain mining?
But does Argo have any unique selling points, or defensive qualities? There are many companies out there with presumably vastly more computing power at their disposal than Argo. And what’s to stop them turning their attention to blockchain mining should the demand increase? I don’t see any real barriers to entry.
I already mentioned the thing about past and future performances, and there’s one other caution that I see as especially important for investors tempted by the Argo Blockchain share price: do your own research. And do it very carefully.