The Argo Blockchain (LSE: ARB) share price is probably the UK stock market story of the past 12 months. February’s record closing highs above 280p per share meant that the company had risen almost 4,200% over the space of a year. Name me another British share that has enjoyed such an eye-popping ascent in recent times.
Naturally Argo’s rise has been underpinned by the staggering rise of cryptocurrency values since the Covid-19 crisis began. Take Bitcoin, up almost 500% during the last 12 months. So naturally, investors have sought to grab a slice of large-scale crypto miner Argo Blockchain too. For those unfamiliar with virtual currencies, prices have risen for a variety of reasons.
The rise of the digital economy has increased bets that electronic currencies could be the future of global commerce. Quantitative easing and central bank rate-cutting during the pandemic have undermined the perceived value of traditional paper currencies too. And the decision of some big corporate beasts like Paypal and Tesla to accept payment in cryptocurrencies like Bitcoin has given the legitimacy of these new-age assets a shot in the arm in the eyes of many.
No one can claim that Argo Blockchain’s share price performance of late hasn’t been staggering. It has made a lot of UK share investors very rich in the process, too. But I for one won’t be jumping on board the Argo train any time soon.
Bitcoin’s price has proven to be highly volatile and unpredictable. Let’s look at this over the past month. From fresh record peaks around $58,180 struck in late February the digital currency has lost 20% of its value. That’s down a fifth in less than a fortnight. And this has had a severe effect in dragging Argo Blockchain’s share price lower too.
Just like commodities stocks, the underlying price of the asset — in this case cryptocurrencies — ultimately underpins profits at Argo Blockchain. However, my concern over cryptocurrency volatility isn’t the only reason I’ll be staying away from the crypto miner.
What I’m doing with Argo Blockchain shares
The business of crypto mining is hugely costly. The machines that Argo Blockchain uses to mine coins are massively expensive and they need to be replaced at regular intervals. The business of producing digital currencies is also massively energy intensive and power bills are stratospheric. That’s not much of a problem today following recent price spikes for Bitcoin et al. But remember that prices are highly volatile and a fresh crash could put profits at Argo and its peers under significant pressure.
There are natural development risks associated with its plans to build new mining facilities. Any problems with sourcing new fleets of mining machines to fill these spaces could have an obvious and significant impact upon revenues too. All in all I’d rather invest my hard-earned cash in less-risky UK shares today.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings and Tesla and recommends the following options: long January 2022 $75 calls on PayPal Holdings. 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.