Argo Blockchain (LSE:ARB) shares have shot up in value by nearly 5000% since the tail end of 2020, peaking at 286p in February. So, what’s all the hype about? With the cryptocurrency and blockchain industry rapidly expanding, let’s take a deeper look at whether this stock is worth investing in today.
What does Argo Blockchain do?
Argo Blockchain is a cryptocurrency mining company. This means it uses high-power computers to solve complex mathematical problems. In return, a cryptocurrency reward like Bitcoin is received. These rewards can then be sold, using the profits to scale up operations, thus mining more currency. The company currently focuses on the mining of Bitcoin and Zcash, using predominantly hydroelectric power to cleanly drive its operations.
Why the share price has surged
There are a number of reasons why Argo Blockchain shares have exploded in value in recent months. First, the company recently announced the acquisition of a new 320-acre plot of land in Texas. The company will use this space to construct a new 200-megawatt crypto mining facility, 10 times more powerful than its current facilities combined. Argo’s CEO Peter Wall explained that it will offer the company “significant capacity for expansion”.
Second, the company mined a record of 129 Bitcoins or Bitcoin equivalents throughout February. This added up to handsome revenue of $6.06m, topping January’s $3.46m sum. In addition to this, on February 26, Argo completed the installation of 4,500 new pro-mining computers, originally leased from Celsius Network back in November.
The company also demonstrated its ambitions by raising £26.8m earlier this month. This was achieved through a share placing and a discounted share price subscription offer of 200p on 3.4m shares by PrimaryBid. Argo plans to invest £7.3m of this into Pluto Digital Assets, a company that invests in and advises crypto projects. This highlights Argo’s confidence in its own sector. The remaining funds will likely be used to scale up facility space further.
A crypto dominant future?
The cryptocurrency market is growing at an astounding pace. Bitcoin and Zcash saw 530% and 200% increases in share values last year respectively (although such past performances aren’t an indication of future results). Tesla CEO Elon Musk also announced earlier this year that his company had purchased $1.5bn worth of Bitcoin, emphasising his personal confidence in the currency.
The progress does sound encouraging. However, there are risks. Argo Blockchain has no unique advantage setting it aside from competitors. Anyone can set up a crypto mining facility with enough capital, regardless of knowledge. What’s more, Argo has no patent protection to prevent any new firms from copying its entire business’s blueprint.
While the Bitcoin price is seemingly still on the rise, it’s still an incredibly volatile stock. The absence of regulations in the crypto market has always been a red flag for me. With Argo Blockchain shares relying so heavily on the Bitcoin price I think the stock is too risky for my portfolio.
Though the company has made recent strides in the crypto world, I won’t be buying shares any time soon.
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Dylan Hood has no positions in any shares mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021