As an investor, it can be difficult deciding which stocks to buy first. The London Stock Exchange lists over 1,000 different stocks from over 100 countries. This means there’s a multitude of companies, sectors, and trends to choose from. It’s daunting, to say the least.
I like to follow a long-term investment strategy, which means I opt to buy shares in companies I think will be here far into the future. These are usually FTSE 350-listed companies or well-established American brands such as Amazon.
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Nevertheless, I’m often tempted by momentum stocks in exciting new sectors. Argo Blockchain (LSE: ARB) is one such stock. It mines for the famed cryptocurrency Bitcoin and has risen to prominence in the past year as the price of Bitcoin soared. But it’s extremely volatile and while the momentum can be enticing, I think it’s wise to look at the bigger investment picture.
A fluctuating share price
Argo Blockchain is a stock on a roller-coaster ride. As a Bitcoin miner, it closely follows the trajectory of the Bitcoin price. This explains the crazy volatility this stock has seen in the past year.
In fact, the Argo blockchain share price has seen a 52-week low of 3.4p and a 52-week high of 339p. Today it’s trading just above 130p, which I think is due to the suppressed Bitcoin price.
Mirroring the volatile price of Bitcoin
The Argo Blockchain market cap is £508m today. Each Bitcoin is worth around £23.7k, so it would need to have over 21k Bitcoins at today’s price to match its current value.
In May, it had its best month yet, mining 166 Bitcoin, bringing its year-to-date total, at that point, to 716 Bitcoin. This is worth £17m at today’s BTC price.
Therefore, to justify its current market cap, investors are banking on the company mining a lot more Bitcoin in the future and the BTC price increasing.
Cryptocurrency is speculative
Theoretically, both could happen. But it’s a speculative situation. Governments are cracking down on cryptocurrency, with China, in particular, taking a hard line.
Staying relevant and at the cutting edge of Bitcoin mining requires the best mining rigs money can buy. Argo Blockchain does currently have excellent rigs, but these date quickly, and it costs a lot to upgrade them.
It also has several competitors. Riot Blockchain is a major one in the US, which has a $2.7bn market cap. And Riot has already spent $145m this year on state-of-the-art Bitmain mining equipment, which it will implement in the coming months. This will double its capacity to mine.
Nevertheless, there are some investors with great faith in Argo Blockchain. Late last month, hedge fund BlackRock took a small stake, which lends it credibility.