Blockchain data centre operator and miner Argo Blockchain (LSE: ARB) has seen its shares lose more than half their value since February, at the time of writing. It isn’t all bad news for Argo’s investors. After all, the Argo Blockchain share price is still over sixteen times higher than it was a year ago. But the decline this year has seen the shares give back significant gains. What’s going on?
About Argo Blockchain
First it’s helpful to understand Argo’s business model. It operates data centres in which tenants can mine for cryptocurrencies such as Bitcoin. But the part of the business which most seems to excite investors is the company’s own efforts in mining such cryptocurrencies.
That is both good and bad. The company’s proven success in mining crypto has helped it to build up stocks of crypto. It has now started selling some of them from time to time, meaning it can convert crypto into hard cash. But more negatively, the crypto exposure means that when Bitcoin prices move downwards Argo usually follows.
Falling Argo Blockchain share price
Lately, though, the Argo Blockchain share price has somewhat decoupled from Bitcoin pricing. For example, Bitcoin has more than doubled since 20 July. Argo has also moved up in the same period. But its share price gain of 55% is markedly more modest than the rise in Bitcoin pricing.
What’s happening here?
I think the stock market is starting to assess Argo for what it is. Instead of being seen as just a rough proxy for Bitcoin, it is now being assessed for its business model of building data centre capacity, mining a range of cryptocurrencies and judiciously converting some assets into hard cash.
Where next for Argo?
While the recent underperformance versus Bitcoin may seem negative, I think there is potential upside here too. Such a decoupling suggests that if Bitcoin pricing crashes, Argo won’t necessarily fall as hard in its wake. Volatile crypto pricing is a key risk for Argo, so I see that as good news.
I also reckon the market will be paying more attention to Argo’s ambitious expansion plans. The company has borrowed money to expand its mining operations. Scale and experience ought to allow it to improve its operational efficiency over time. That could be good for its profit margins.
My next move on the Argo Blockchain share price
I reckon the share price movements suggest that the market is starting to value Argo Blockchain for the company it is, not simply as a proxy for Bitcoin pricing.
That could mean that there is upside potential for the shares if it continues to demonstrate its ability to grow fast and scale operations. I still don’t like the fact that Argo’s valuation is influenced by crypto pricing over which it has no control. But while I am not investing for now, I am keeping a closer eye on Argo’s business plans.
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.
Christopher Ruane 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.
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