The share price of Argo Blockchain (LSE:ARB) jumped 6% this morning after it released its October operational update. Despite this latest jump, the stock is still firmly below its February highs. However, it’s worth noting that the 12-month return for shareholders is a staggering 1,470%! How are things going with this business? And should I be considering it for my portfolio?
The ARB share price jumps on earnings
As a quick reminder, Argo Blockchain is a cryptocurrency mining firm. It invests capital into high-performance computing hardware to mine digital tokens like Bitcoin. These can then be sold on exchanges similar to the stock market, where the proceeds can be reinvested into expanding the group’s mining capabilities.
Today, management released its monthly progress update. And given the elevated state of the ARB share price, I think it’s fair to say investors are pretty pleased. During October, the company successfully mined 167 Bitcoin or equivalents, bringing the year-to-date total to 1,646. This is only a 1% increase from September. But due to rising cryptocurrency prices, revenue for the month jumped 32% from £5.5m to £7.2m. And this also enabled profit margins from mining activity to increase by 2%, reaching 86%.
Needless to say, this is excellent news for the business. And with the construction of its new Texas facility staying on schedule, along with additional mining machines being brought on-line, the rising ARB share price is hardly a surprising sight. But despite this impressive growth, I still remain sceptical about the long-term outlook for this business. Let me explain why.
The threats are mounting
When I first looked at this company, the most apparent threat at the time was a lack of pricing power. After all, the value of Bitcoin is ultimately determined by the market. Having no control over the price of its products is not exactly a trait of an excellent business. This is a problem all commodity-based enterprises have. But in the case of cryptocurrencies, their extreme volatility adds significantly more risk. Even more so now that regulators are starting to crack down on these digital assets.
Throughout 2021, more nations have been introducing limitations on cryptocurrencies, while others are placing outright bans. Here in the UK and across the pond in the US, these assets remain largely unregulated. But that may soon change. Earlier this month, the US Treasury released its report on ‘stablecoins’. These are cryptocurrencies designed to mimic the price of a regular currency like British pounds or the US dollar. This investigation concluded that Stablecoin issuers should be regulated in the same way as depository banks.
That’s a substantial amount of oversight that most stablecoin issuers may not be able to comply with. Argo Blockchain isn’t directly affected by this decision since it doesn’t dabble with stablecoins. However, this potential legislation does open the flood gates to further regulation regarding other cryptocurrencies like Bitcoin. And if these rules are as restrictive as the proposed legislation for stablecoins, the price of Bitcoin could plummet, taking the ARB share price with it.
The bottom line
All things considered, Argo Blockchain seems to be doing well as a business. However, management’s lack of control over the future of its company doesn’t entice me to invest. Therefore, despite the growth potential of the ARB share price, I’m keeping this stock on my watchlist.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
The content in this article is provided for information purposes only. It is not intended to be, neither does it 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.
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