The last time Argo Blockchain (LSE:ARB) shares closed above 100p was just before Christmas last year. Since then, the share price has struggled, closing last week at 78p. This means that over the past year, the Argo Blockchain share price is down almost 19%. With the fate of the company tied to the future of cryptocurrency, could a resurgence take the share price back to triple digits this year?
Argo Blockchain shares depend on crypto prices
Argo Blockchain is a cryptocurrency mining company. This means that it helps to verify and record transactions on the blockchain, as well as helping to build the blockchain in the process. Miners get rewarded in crypto, with Argo mostly receiving money in the form of Bitcoin.
The Argo Blockchain share price therefore has some correlation to the moves in Bitcoin. When the latter’s price was rallying Q1 of last year, Argo shares also roared higher. The coins being mined had a greater monetary value, so it helped to boost revenue and profitability at the firm.
The flipside is also true. With Bitcoin in a nosedive since early November, it’s not surprising that the share price has also moved below 100p. Fundamentally, I think that some of the future direction of Argo Blockchain shares is out of the hands of the management team. If Bitcoin and the crypto market in general can see more positive sentiment, then a rally higher this year is likely on the cards.
From my point of view, I can’t accurately put a fair price on where Bitcoin and other coins should be trading. Therefore, from this angle I don’t think anyone can offer an opinion with any certainty.
Doing what’s in their power
What I can offer an opinion on is the direction of the business from the management team’s actions. In a recent investor presentation, the leaderships team laid out its vision for the future, which impressed me.
For example, it’s solidifying its presence in Quebec, due to the cheap and clean hydroelectricity. It’s also investing heavily in Texas, partly due to the state being the largest US wind generator with low electricity rates. This power generation should help the company be sustainable in sourcing power going forward.
The mining margin that it has is also the best in the sector, at 83%. This helped to push the EBITDA Margin to 73% for the first nine months of 2021. The bottom line here is that the company has a business model that works and is efficient. Expansion in Texas should drive further growth as operations scale up.
I imagine that we’ll continue to see growth in the numbers over the course of 2022. As such, I’d expect the Argo Blockchain share price to bounce higher this year.
In terms of investing, I think that this is a good business to consider. Based on the business alone, I do think the shares are poised for a move higher. However, the correlation to Bitcoin prices does worry me. As a result, I’d rather invest in other businesses that aren’t at the mercy of crypto swings. On that basis I won’t be investing in Argo Blockchain shares at the moment.
Jon Smith and The Motley Fool UK have 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.
