Argo Blockchain shares: after the crypto crash yesterday, what should I do?

Big Bitcoin logo.

Yesterday saw a crash in the price of Bitcoin and other crypto coins. Even though high volatility is the norm, this double-digit crash in the space of less than a day is still eyebrow raising. Given the correlation to its business operations, Argo Blockchain (LSE: ARB) shares also fell yesterday. After it has somewhat steadied the ship so far today, how should I react?

Reasons behind the crash

Argo Blockchain shares fell 9p to close around 130p yesterday. This reflects a fall of 6%. In comparison, some cryptocurrencies saw falls of 20% or more. Bitcoin fell around 14%, but managed to bounce back and is currently trading around the $46,000 level.

The crash yesterday doesn’t appear to have any concrete drivers behind it. Some are pointing to the fact that the main flash crash happened around 4pm London time. This coincides with what’s known as the 4pm fix, a reference point taken for the day for most currencies. It’s also the point in the day when a reference rate is taken to use to value derivatives that are based around Bitcoin. 

The large amount of trading that goes on around the 4pm fix could be a reason behind the crash. Argo Blockchain shares therefore moved lower around this time as a direct correlation of the moves that were occurring in the cryptocurrency space.

Another reason being pointed to is that some investors bought the rumour and sold the fact around El Salvador making Bitcoin legal tender. The Bitcoin price has been rallying in recent weeks partly on the rumour of this happening. Then when the bill was finally passed, selling happened as investors took profit. This is something that does happen in markets, as investors try and buy in before the price fully reflects a potential news announcement.

The impact on Argo Blockchain shares

Argo Blockchain shares track the price of cryptocurrency fairly well as the company operates in this area with blockchain technology. During August, it mined a total of 206 Bitcoins or Bitcoin equivalents. So the value of the revenue that the firm generates is tied to the value of what a Bitcoin is worth.

This is a similar case for gold mining companies, in that the value of gold impacts the revenues that the miner has. 

Argo Blockchain stock can perform well by itself. The growth in operations allowed it to post half-year revenue growth of 180% from the same period last year. Continued expansion will allow profits to grow further. Yet I am conscious that the correlation to the Bitcoin price will always have some form of hold on performance.

Going back to my example of gold, I feel that if I have a firm conviction on the future gold price then I can express this view by buying shares in a gold mining stock. Yet with Bitcoin, I don’t have a clear view on whether the price will be higher or lower than current levels in a year from now. 

From that angle, I struggle to justify buying Argo Blockchain shares right now so will be staying clear. 

The post Argo Blockchain shares: after the crypto crash yesterday, what should I do? appeared first on The Motley Fool UK.

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jonathansmith1 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.