Both companies are involved in large-scale cryptocurrency mining. It’s a resource-intensive business and costs a lot of money to maintain the data centres required. Riot is one of the largest Bitcoin miners in North America, and Argo’s operations are based there too.

Blockchain stocks endure rollercoaster ride

Riot started the year with a share price around $16.50 and by February 17, it hit a high of $77.90, a whopping 372% jump. Argo Blockchain started the year at £47, rising to £284 in February, which was an even more impressive 504% gain. But as the price of Bitcoin plummeted over the past two days, so did the price of these blockchain stocks. With each of them losing over 26% in a day.

Bitcoin has been skyrocketing as more and more institutional investors get on board. However, fear has been building, that it’s getting too high too quickly, based on speculation rather than good fundamental reasoning. Perhaps that’s why it’s now pulled back so dramatically.

Have Argo and Riot got staying power?

As Argo is the only blockchain stock available on the London Stock Exchange, it has a first mover advantage. Fear of missing out (FOMO) has been rife this past year, and this is exactly the kind of tech stock that generates hype and speculation. Unfortunately, in these circumstances a price rise is only as good as it lasts, and the downward drop can be even more dramatic than the climb.

It has a market cap of around £766m compared with Riot’s £1.3bn. Earnings per share are negative, and neither company offers a dividend.

During the first nine months of 2020, Riot generated $6.7m in revenue and produced a $16.6m net loss. It also produced 730 Bitcoin. With no profits, it doesn’t have a competitive edge. There are many other Bitcoin miners operating in North America, China and elsewhere in the world.

Riot has been investing in the latest mining equipment to stay ahead of the game. Argo is doing the same. This is great if it can keep it up, but in the fast-changing world of crypto mining this equipment can date quickly, and staying competitive becomes very costly.

With Bitcoin enjoying a new level of credibility and rising price momentum, it’s quite possible these blockchain stocks will continue in the same vein. So for momentum investors, I can see the appeal.

Speculation and fluctuation

I can understand the speculation surrounding these blockchain stocks. For many traditional investors, it’s easier to get on the crypto bandwagon via a stock investment than buying the individual coins directly. However, it’s still open to considerable price volatility and difficult for many novice investors to understand.

These are highly speculative stocks, and not something I’d consider a safe addition to my own portfolio. I don’t think I should buy shares in either of them today.