The crypto market is falling: should I buy Argo Blockchain shares?

New virtual money concept, Gold Bitcoins

Cryptocurrency and equity markets have followed similar trajectories over the last seven days, both tumbling. I think the broad reason behind these falls can be linked back to rising inflation. Regarding crypto more specifically, US Treasury Secretary Janet Yellen played a part in fuelling the crash, warning of the market being “very risky” to invest in over the long term.

So where does this leave Bitcoin mining company Argo Blockchain (LSE: ARB)? Well, Argo shares slid 15% yesterday alone, with Bitcoin also falling 10%. The shares are down 75% over the last 12 months. With the stock trading at just 37p, is now the time for me to buy? Let’s take a look.

The story so far

Argo Blockchain is a crypto mining company. This means it uses high-powered computers to solve complex cryptographic puzzles, earning digital assets – mainly Bitcoin – in return. It then sells these coins on the secondary market to create revenue. This makes the whole business model reliant on the price of Bitcoin, which worries me.

My concerns over Argo’s business model were solidified by data released with its May results. The firm mined 124 Bitcoins (or equivalents) for the month, down from 166 in April and 163 in March. The main reason for this drop in mining capacity was rising temperatures in Texas, which is where the company’s largest mining facility is based. The high temperatures led to increased energy prices, forcing Argo to curtail mining operations. Due to the falling price of Bitcoin, mining profit margins dropped to 62% for May, as opposed to 75% in April. The drop in margins highlights the reliance on the price of Bitcoin.

As mentioned, rising inflation seems to be weighing on the crypto market. As inflation soars, central banks raise interest rates to slow down economic growth. Consequently, investors can earn a high risk-free return elsewhere and hence they sell out of speculative positions like crypto investments. Market leader Bitcoin has seen its price fall over 45% year-to-date, highlighting the effects of inflation on investor sentiment.

Reasons to be cheerful

Yet it’s not all bad. May marked the first month of mining operations at Argo Blockchain’s new Helios facility. This has vastly improved mining capacity, and a further 20,000 mining computers are expected to be added to it by October. The scaling up of operations could yield value in the long term.

In addition to this, it’s hard not to notice the enormous yearly growth that Argo has achieved since 2018. It has seen a compound annual rate of over 350%, which is pretty crazy. The Helios facility could help Argo continue this impressive development.

The verdict

That said, I think the investment case for Argo Blockchain shares is weak. I’ve stated for some time my concerns about the business plan’s reliance on Bitcoin, and this is coming back to bite it now Bitcoin’s price is tumbling. As the macroeconomic climate worsens, I think that price could slide further, and hence Argo Blockchain shares would continue to fall. Therefore I won’t be buying this stock for my portfolio any time soon.  

The post The crypto market is falling: should I buy Argo Blockchain shares? appeared first on The Motley Fool UK.

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More reading

  • Argo Blockchain shares dumped 9% yesterday. What’s going on?
  • After the latest ARB share price slide, is it finally time to buy?
  • At 55p, is the Argo Blockchain (LON:ARB) share price too cheap to miss?

Dylan Hood 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.