Over the longer term, however, the picture also looks dramatic – but in a less rosy way. Even after the recent sharp increase in value, the shares are still 82% lower than they were a year ago.

Unclear drivers

So, why has the share price soared recently?

The answer is not really clear, in my opinion. It is true that some cryptocurrencies including Bitcoin have increased in value recently. Bitcoin, for example, has risen 8% over the past five days. As a core part of Argo’s business strategy and asset base, an increase in Bitcoin valuation ought to help boost its share price. But an 8% increase in Bitcoin values hardly explains why Argo shares have leapt by two thirds.

In reality, there has not been any specific news from Argo in recent days that I think helps explain the jump. The last substantive news from the firm was released over a fortnight ago. That was simply the company’s regular monthly update. The mining profit edged up from the previous month but that increase of 6% was not very notable, especially as it mostly just reflected a change in the dollar to pound exchange rate compared to the prior month.

It could be that, with the Argo price far below its previous levels and trading in pennies, bargain hunters have pushed up the share price in recent days. For now at least, I do not see any other clear reason that explains the strong upwards movement.

What comes next for the Argo Blockchain share price

If that is the case, it is unclear whether such positive momentum can continue. Recent gains in the Argo Blockchain share price could be reversed.

As an Argo shareholder and long-term investor, simply hoping that shifts in investor momentum push the price up in the short term is not the sort of strategy that can help me sleep comfortably at night.

Instead, what I would hope for is a set of concrete reasons to believe the investment case is becoming more robust, which could support an increased share price.

My move

That might happen. For example, if crypto prices keep moving up, that could help both the value of Argo’s crypto assets today and the economics of its mining activities in future.

But the company has been sailing through choppy waters lately. It announced this month that it is selling thousands of unused mining machines and raising cash to boost its liquidity. That suggests that there is a risk existing shareholders could be further diluted as the company seeks to strengthen its balance sheet. It also casts doubt over the viability of the firm’s business model.

That could be bad for the share price. I am not buying any more shares for now. Instead, I am paying attention to see whether Argo releases any news that helps increase my confidence in its long-term investment case. If that does not happen in coming months, I will consider selling my shares.

The chart is not pretty — not only has the price fallen recently, it has been on a downward trend for much of the 12 months.

So, will the price drift even lower or could it start to regain ground? As an Argo Blockchain shareholder myself, this is not just a theoretical question. I need to decide whether to sell at a loss or hang on hoping for an improvement in the share price.

Changed times

Argo was riding high for parts of last year, when crypto prices were more robust and the broader economy seemed less fragile than it does now.

But the US dollar value of Bitcoin has tumbled 69% last year (the pound value has fallen by 61%). A lot of tech-related shares saw heavy price falls in the final months of 2021 and have yet to recover their old levels.

That matters for Argo because optimism about tech and a strong crypto price helped support its share price. As a crypto miner, lower prices for Bitcoin and its peers equate to smaller profits for Argo — or none at all.

Business challenges ahead

That environment is reflected in some of the challenges that the company is currently facing.

This month it announced plans to sell thousands of unused mining machines and raise capital by issuing new shares. That will dilute existing shareholders. I see a risk that in order to boost liquidity further in future, shareholders could be diluted again.

Part of the justification for this move was to “ensure that the Company has the working capital necessary to. . .  meet its obligations over the next twelve months.” Although the company is working to stay viable, the language used seems ominous to me. Apparently the board is concerned that some tough medicine is needed just to meet the firm’s short-term obligations.

Grounds for optimism

However, all is not lost.

The company has proven it can make a mining profit. That could be the foundation for future profits. Just as a fall in crypto prices has hurt the Argo Blockchain share price, any future increase might help it.

Argo also has a number of data centres I think could be used to earn revenue even if not by mining crypto. Demand for data centre space remains high and I expect that to continue.

Where next for the Argo Blockchain share price?

Despite that, the company clearly faces challenges. Its recent moves are prudent but shoring up the balance sheet in that way may further hurt investor sentiment. Indeed, since the announcement, the Argo Blockchain share price has moved downwards.

With positive news and higher crypto prices, the price could recover in future. But I think there is a real risk it could end up going to zero. Even if it does recover, I do not expect that to happen any time soon.

For now I still hold my shares. But if the outlook does not improve in coming months, I will consider selling them.

Unfortunately though, the crypto miner has produced disappointing investment returns lately. If I’d put my money into the stock a year ago, I’d now be facing massive losses.

Argo Blockchain shares have tanked

This time last year, Argo Blockchain shares were trading at around 120p. Today however, they’re changing hands for just 15p. That represents a decline of around 88%.

What this means is that if I’d put £5,000 into the growth stock a year ago, my money would now be worth around £625 (ignoring trading commissions). That’s a nasty loss.

Of course, looking at one-year performance only doesn’t tell the full story. If I’d put £5k into the stock four years ago, shortly after the company’s Initial Public Offering (IPO), I’d now be sitting on a healthy profit.

Assuming I picked up shares for around 7p, my £5,000 investment would now be worth about £10,700. So long-term investors have still been rewarded here.

However, anyone who bought the shares after its big spike in early 2021 will be feeling some pain right now.

How to avoid big losses with growth stocks

One key takeaway from the recent performance of Argo Blockchain shares is that it’s crucial to ‘right-size’ your stock positions relative to their risk levels.

Argo Blockchain was always a high-risk, speculative stock due to its exposure to Bitcoin – which is notoriously volatile – and its lack of competitive advantage (literally anyone can mine Bitcoin). And the stock had had an enormous rise early in 2021, pushing its market-cap to very high levels (increasing the investment risk).

Now investing in high-risk, speculative stocks is fine. Because they can potentially deliver great returns. However, investors need to give a lot of consideration to risk management when buying these kinds of stocks as they can crash badly if things go wrong. You don’t want to be in a position where one big loss blows up your entire portfolio.

If I’d had invested just 1% of my overall portfolio in Argo Blockchain shares a year ago, the 88% loss here wouldn’t be the end of the world. The large decline wouldn’t have had too much impact on my overall portfolio.

However, if I’d invested 30% of my portfolio in ARB shares, the impact on my portfolio would have been significant. The chances are my overall portfolio would have taken a huge hit.

By right-sizing the position, and keeping it small relative to my overall portfolio, I could have dramatically reduced my losses.

I’ll certainly be keeping this in mind as I add more speculative growth stocks to my investment portfolio in the years ahead.

Despite that, there is still room for it to go lower. So, should I sell my holding now in case the shares end up going to zero?

What’s behind the Argo Blockchain share price crash?

A share typically does not fall over 80% in a year without a reason. Argo Blockchain is no exception.

The Argo Blockchain share price had already been struggling for many months. The company mines cryptocurrencies such as Bitcoin. So the falling price in Bitcoin hurt the value of what the company was mining, as well as investor perceptions of the firm’s long-term value.

However, what had already been a sizeable decline became a crash last week after the company issued an announcement with what I thought was an alarming title: “Strategic Actions to Strengthen the Company’s Balance Sheet”.

On its own, having a strong balance sheet is good business practice in my view. As an objective, I would applaud it. The reason I winced when I saw the announcement title was because of the implication that Argo Blockchain needed to shore up its finances pressingly.

Liquidity moves and equipment sales

Argo proclaimed itself “pleased to announce” several steps it is taking to boost liquidity, which struck me as unduly upbeat for what amounts at least in part to a fire sale.

Having spent most of its life as a listed company trumpeting its expansion plans, the company has agreed to sell 3,400 mining machines for £6m. They are described as being “new in box”. That reeks of financial desperation to me. It also suggests that the company’s aggressive expansion plans have significantly outstripped its ability to execute.

The company also plans to raise £24m, before charges, by issuing new shares. This will dilute existing shareholders.

On the plus side, both moves could help the company raise cash. If it has enough cash to survive, it may be able to further prove its business model. For example, if crypto prices increase, profits could increase. Mining continues and last month, the company mined 215 Bitcoin or Bitcoin equivalents.

But I think the fundraise and equipment sale cut to the core of management credibility. It has had to shore up liquidity by selling equipment still in its boxes that should have been used to deliver Argo Blockchain’s growth plan. High electricity prices mean that its massive US data centre is operating less than had been hoped.

I think Argo could go to zero

Between high electricity prices challenging the business model, a liquidity squeeze, and growing doubts about management competence, I think further rights issues or simply an increasingly uneconomic business could end up pushing the Argo Blockchain share price close to zero – or even zero.

I am therefore considering selling my stake, depending on how the business performs in coming months.

Why the Bitcoin price matters

As highlighted in the H1 results, Argo mined 939 Bitcoins and equivalent coins during the period. Yet even though this was up 6% on the previous year, the actual financial value of this revenue was lower by 14%. This difference was due to the fall in the Bitcoin price in the interim.

The business does have other ways of growing revenue. For example, increasing capacity with the new facility in Texas. But fundamentally, revenue will always need to be translated from Bitcoin to US dollars for accounting purposes.

For investors, the value of Argo Blockchain depends in part on the financial success of the company. The lower revenue and profits is one reason why the share price is down 70% over the past year.

Good news for Argo Blockchain shares

The Bitcoin price was last at $40k back in early May. Some friends that are very active in the crypto space is forecasting for it to reach that level within the next year. I acknowledge that trying to forecast crypto moves is very difficult, so take this with a pinch of salt! However, it could happen if we see general risk sentiment improve. Alternatively, crypto in general could benefit from investors that are trying to diversify their investments away from just traditional stocks.

Whatever the reason, I think Argo Blockchain shares could also rally hard if this scenario happened. Aside from the financial benefit it would get, I think the share price would gain as it’s one of the few crypto-related stocks listed publicly in the UK.

For example, an investor might not feel comfortable buying crypto directly. Instead, they may feel safer buying a listed stock like Argo Blockchain. Given the share price correlates to the movement of the crypto space, it’s a way of dipping a toe in the water. So if the Bitcoin price starts to move higher and it’s back in all the media outlets, interest in crypto stocks should also increase.

Time to get involved?

I do think that in the long term, the Bitcoin price will be higher than it is currently. This is based on the amount of projects it can be used for. As a result, I also think that Argo Blockchain will be able to be profitable in years to come, thanks to the higher coin prices.

The problem I have is that I’m already invested in Bitcoin. So buying Argo Blockchain shares increases my exposure to this sector. It’s a bit like me owning gold and then buying a gold-mining stock. It doesn’t really make sense. Rather, I want to use my stock portfolio to diversify away my crypto risk by investing in companies from unrelated sectors.

On that basis, even though I’m bullish on Bitcoin and crypto shares, I’m not going to buy Argo Blockchain stock.

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.

What’s happening, and does this mean the tide has finally turned? And are Argo shares worth buying now?

These movements are against a background of longer-term falling prices. Over the past 12 months, Bitcoin has fallen 56% while Argo Blockchain shares are down 59%.

Argo shares track Bitcoin closely, but there has been one marked change. Investors are paying a smaller premium for Argo shares these days over the Bitcoin price itself. But if that’s starting to reverse again, I wonder if we could see another bull run.

Interim results

The company mined a total of 939 Bitcoin and Bitcoin Equivalent (BTC) during the first half of 2022. That’s 6% more BTC than the the same period a year ago.

I see that as a disappointing increase. Bitcoin miners face a problem in the shape of halving events. After one of those happens, they then receive half the coin reward for the same amount of blockchain processing.

The last halving was in May 2020, and the next is due in May 2024. So Argo would need to double its mining capacity to create the same number of Bitcoin. And a 6% growth doesn’t look too inspiring.

Hashrate

Saying that, Phase 1 of the firm’s new Texas facility only began operating in May. And that means Argo’s hashrate (a measure of mining capacity) has risen 38% since the end of 2021.

But Argo has reduced its projected year-end hashrate, and is now predicting significantly lower capacity than previously expected. So Argo needs to keep running to stand still, and that costs money. It reported up to $97.3m in new financing secured during the period.

Margins

We’re looking at a combination of rising mining volumes with falling profits. First-half revenues fell 14%, with underlying EBITDA down 28%. It’s all down to the Bitcoin price, which is somewhat unpredictable.

There’s a parallel with gold miners here. And though I doubt I’d ever own gold, I could certainly buy gold mining shares if I thought the valuation was right. It’s all about margins, and how mining costs relate to the going price of the stuff.

Argo achieved a mining margin of 71% in the first six months of 2022. That’s down from 81% in the same period last year. But it’s still healthy, and it does provide some buffer against further falls.

Same as gold?

Well, it would if, like gold miners, Argo Blockchain sold everything it mined. But while gold miners don’t hoard much of the metal, Argo is building up its BTC holdings. The stash grew 54% by 30 June, to 1,953 BTC.

It’s is worth approximately $42.4m, or £35.8m. Argo’s market-cap of £197m is about 5.5 times that value. That’s still a big premium.

I could buy crypto mining shares in the right circumstances, just as I might buy gold miners. I just don’t find Argo Blockchain shares attractively valued today.

But are they worth buying?

Why the shares are falling

As a cryptocurrency miner, Argo has suffered along with the value of crypto. Bitcoin has lost 46% of its value in the past year. So it is understandable that Argo shares have taken a hit.

Still, the fall in Argo Blockchain shares is bigger than that of Bitcoin. Why is that so?

I think it partly reflects a shift in sentiment towards the company. As crypto has tumbled, Argo’s big investments in new mining capacity, like its massive Texan data centre, threaten to look more like a white elephant than an inspired piece of strategic foresight. But that could change if bitcoin prices move up enough, in my opinion.

Meanwhile, the company continues to mine successfully. Last month, for example, what the firm terms its mining profit came in at almost £1.5m. But that has not been enough to stop Argo Blockchain shares from sliding.

Reasons for optimism

To a significant extent, the fortunes of Argo are tied to what happens to crypto valuations. High crypto prices do not necessarily mean Argo will succeed. But without strong prices, a business model that includes Argo acting as a crypto miner is in trouble.

Nobody knows what will happen to crypto prices in future, which is a big risk for Argo Blockchain shares. Despite already falling a long way, they could keep going down if crypto prices tumble.

But that cuts the other way too. If crypto prices recover, Argo’s proven mining expertise and infrastructure could help boost its profitability. On top of that, I think the company’s network of data centres may be useful even if crypto prices remain deflated. Demand for data storage is set to keep growing in coming years. That is something Argo might be able to capitalise on to develop income streams outside of crypto mining.

I also think the management deserves credit for the way it has grown the business. Revenue last year almost quadrupled compared to the prior 12 months. The company made a £30m profit, meaning it currently trades on price-to-earnings ratio of just 8. Falling crypto prices could hurt this year’s performance badly and that could mean much lower earnings. But I think it is positive that Argo has shown it can make a healthy profit in the right conditions.

My next move

I have a small holding of Argo Blockchain shares in my portfolio.

For now, I continue to hold them and am hopeful that the business performance will improve. But falling crypto prices have highlighted just one of the risks here and I do not plan to buy more, despite their price falling.

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.

The crypto correlation

The share price of Argo Blockchain is down almost 73% over the past year, mirroring the slump in the Bitcoin price. Regardless of what the business does, it will always have a strong correlation to the price of Bitcoin and crypto in general.

For example, consider the fact that in its 2021 full-year report, Argo Blockchain said it mined 2,045 Bitcoins. To assign a revenue figure to this, I’d multiply 2,045 by the price of a Bitcoin at that time. Now if Bitcoin is still at $20k when the 2022 report is calculated, the business will have to mine significantly more Bitcoins just to keep the same revenue figure!

This problem isn’t just faced by Argo Blockchain. Commodity and mining stocks have to contend with fluctuating oil, gold, and other prices. Yet crypto is much more volatile in nature.

As another case in point, the value of the balance sheet for Argo Blockchain has also fallen. As of March, it held 2,700 Bitcoins, valued at $122.9m, as an asset on its books. Currently, the same holdings would be valued at $59.4m. The movement has therefore reduced the overall value of the business.

Buying Argo Blockchain shares cheap

Based on the Bitcoin fall, it’s no surprise to me that the Argo Blockchain share price has fallen to reflect the lower revenue and valuation metrics of the company. Yet my thinking now turns to whether the fall has reached a bottom.

I think there are two reasons why I might justify buying shares in the company right now. Firstly, it’s possible the crypto crash is finally coming to an end. In this is the case, a rally in the Bitcoin price would naturally provide an uplift that Argo Blockchain could take advantage of. If this is the start of a long-term bull run, then the upside could be huge.

The second reason is company specific. The market capitalisation has fallen to just £170m, with a price-to-earnings ratio of 4.48. This indicates to me that the company is undervalued at the current price. The company does have assets that aren’t exposed to the movements of crypto prices. These include intellectual property, mining equipment, and more. So the share price will have a natural floor given this value.

I am excited about buying shares in the crypto miner at cheap levels. But I don’t think the crypto crash is over yet. Therefore, I’m going to sit on the sidelines for the moment and be patient.

The latest dip comes on the back of falling cryptocurrency prices, with Bitcoin going into a renewed dive in June. Right now, the blockchain money is valued at $20,200 per coin. That’s a long way short of its November 2021 peak at nearly $69,000. So is it time for investors to dump Argo Blockchain shares, or time to buy?

What do the experts say?

Warren Buffett once suggested we should be greedy when others are fearful. But then, he also famously referred to Bitcoin as “rat poison squared“. So maybe his thing about being greedy doesn’t apply in this case.

More recently, Bank of England governor Andrew Bailey warned investors about cryptocurrencies, saying: “If you want to invest in these assets, okay, but be prepared to lose all your money.”

Are these two high-profile naysayers right? Are we heading for the end of cryptocurrency investing, and the end for crypto miners like Argo Blockchain?

Always consider the risk

I do think investors should consider these warnings about cryptocurrency risks before buying shares in a crypto miner. But I think the same about any form of investing, and I investigate the risks of any individual stock I invest in.

But I do think that rumours of the death of cryptocurrency miners are premature. Even if Bitcoin has fallen in price, Argo Blockchain still has sufficient margin to bank its profits.

In its most recent operational update, the company reported a mining margin of 62% in May. That’s down from a 75% margin in April. It resulted in mining revenue of £3.07m, even if that is a dip from £5.52m in April.

Dip in revenue

The drop in margin was only partly due to lower Bitcoin prices. Argo also mined less in May, and that contributed to the reduction. It added 124 Bitcoin or Bitcoin equivalents (BTC) to its stash during the month, compared to 166 BTC in April.

Part of the reason for the fall in production was interesting. Argo temporarily shut down its operations in Texas when hot weather led to extra energy demand and higher power costs. That seems a bit ironic for an industry that faces accusations of contributing to global warming.

No death yet

So what’s really happening now? In dangerous economic times like those we currently face, investors will typically sell out their risky options and put their money somewhere safer.

And that might be all that we’re seeing. I would always expect Bitcoin, and crypto miners, to suffer every time there’s an ‘investor flight to safety’.

Does it mean I’d buy Argo Blockchain shares now? No. That’s simply because I have no idea how to put a fair valuation on the company. So if this is genuinely a buying opportunity, it’s one I’ll miss.