I don’t have to buy Bitcoin or other alt-coins to join the crypto revolution. Instead, I could invest in the shares of a company like Argo Blockchain (LSE:ARB).Â
Given that crypto is red hot right now, I can see why the UK’s only publicly-traded blockchain technology company is in demand.
The Argo Blockchain share price has multiplied from 5.5p a year ago, to 180p today. That’s an increase of 3,172%. If I’d invested £1,000 a year ago, I’d have £32,720 today. I’m not going to see that kind of return by investing in a FTSE 100 blue-chip.
Naturally, when things rise that quickly, they can fall just as fast. As Zaven Boyrazian explains here, Argo Blockchain operates like a mining company, but with a twist. Instead of extracting minerals and metals from the ground, it mines cryptocurrencies – specifically Bitcoin and Zcash.
I’d rather buy actual Bitcoin and Ethereum
This involves firing up powerful computers to solve complex financial attractions in return for digital tokens, which it hopes will rise in value. It’s a simple business model. The Bitcoin is out there. Argo Blockchain mines it. The costs are pretty low too, so the main risk is what happens to the Bitcoin (and Zcash) price.
Cryptos have been on a roll this year. Bitcoin is up 412% over 12 months. Ethereum is up 1,259%. Dogecoin is up 16,190%. Zcash is a relative sluggard, up just 235% in a year.
When the Bitcoin price rises, so do Argo Blockchain’s profits. And when it falls, down comes its stock, as we’ve recently seen.
Argo Blockchain mined 918 BTC during the first three months of this year, double its previous three-month tally. It’s looking to have capacity, ordering 1,000 mining machines. If the Bitcoin price stays high, profits seem assured. Of course, that’s a big ‘if’.
Today, Argo Blockchain reported revenues of £6.7m in April, up slightly from £6.57m in March, with an average monthly margin of 85%. It mined another 163 Bitcoin and now holds 936 BTC and equivalents.Â
I don’t trust cryptos, or like them particularly, but I do hold a smattering of Bitcoin and Ether myself. I want some exposure to this racy sector, but not enough to inflict any damage on my portfolio if they all crash to zero.
I’m not investing in Argo Blockchain
The market has become more established, as institutional investors dive in. Crypto will remain volatile, but if you know the risks and limit your exposure, it’s arguably worth a punt. I’d never invest more than 5% of my portfolio in this high-risk area, with the vast majority of my money going into shares.
I’d rather buy actual crypto than Argo Blockchain. Its total market-cap is £706m. At time of writing, its 936 Bitcoins are worth just over $52m. That’s quite a premium.
It’s adding to its haul at the rate of around 165 coins a month, so that will grow. However, I’m not convinced that’s fast enough to justify today’s valuation.
My biggest worry is that Argo Blockchain management is helpless in the face of its biggest risk. A crypto crash. Personally, I’d rather buy a business on more solid foundations.