Argo Blockchain (LSE: ARB) was incorporated as a company (as GoSun Blockchain) on 5 December 2017. On 3 August the following year, it had its IPO; shares opened for trading at 17p. Since the IPO, the Argo Blockchain share price drifted as low as 2.55p. An all-time high of 145p was hit on 8 January 2021 after an impressive two-week rally from 20p. Argo stock’s price has fallen back now, to around 80p, but that still represents a 1,011% one-year gain.
Argo Blockchain mines Bitcoin and other cryptocurrencies. Mining means verifying cryptocurrency transactions and adding new blocks to a blockchain ledger. As compensation for supporting the network, miners get Bitcoins or equivalents, plus a share of transaction fees paid by network users.
In April 2020, Argo mined 247 Bitcoin or equivalents with 730 petahash of computing power. In December 2020, 96 coins were delivered with 645 petahash of power. It is a crude measure, but the number of coins per petahash has fallen three-fold in this time period. That is not surprising – the reward for completing a block fell from 12.5 to 6.25 Bitcoin in May 2020. These “halving” events are programmed to happen every four years or so. Eventually, miners will be compensated for maintaining the network by transaction fees alone, which are assumed to grow over time.
But mining is also getting tougher. Bitcoin is designed so that each block takes 10 mins or so to complete, by solving a cryptographic puzzle. More miners have joined the ranks, particularly so since Bitcoin’s price has surged. As a result, puzzle difficulty has increased.
Assuming all monthly mined coins are Bitcoin, and knowing the rewards, we can estimate that 26 bocks were completed in April 2020, compared to 15 in December. Blocks completed per petahash of power fell from 0.035 in April 2020 to 0.024 in December.
Argo Blockchain share price
There is a complex interplay between rising cryptocurrency prices (a positive) driving an increase in mining difficulty (a negative) with declining rewards (due to halvings) needing to be balanced by increasing transaction fees or an increase in price to keep miners incentivised to maintain the network.
Yet, Argo shares are attractive to me as a way to gain exposure to the cryptocurrency market, due to its size and efficiency as a miner. However, the price has to be right given the complications described above and the volatility and immaturity of the cryptocurrency markets.
At the end of June 2020, I estimate Argo had 112 coins as digital assets. Argo mined 795 Bitcoin or their equivalents in the second half of 2020, and I estimate 64 coins were mined by 20 January. That’s 971 coins in total. Assuming they are all Bitcoin (they are not) and none have been sold (they must have been, to fund operations) that’s a £25m hoard.
Argo sold 28m shares for £22.4m today, and 3m warrants and options have been exercised, taking the share count to 359m. I estimate Argo’s book value to be around £68m using the calculated digital asset value, cash from share issuance, and what I think has happened since the last balance sheet, dated end of June 2020.
I get to a book value per share (BVPS) of 19p. Argo is currently trading around four times higher than my calculated BVPS. The Argo Blockchain share price is too high for me right now.