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Is Argo Blockchain a unique opportunity?

A depiction of the cryptocurrency Bitcoin
Image source: Getty Images.

Argo Blockchain (LSE: ARB) is the only cryptocurrency mining company listed on the London Stock Exchange. I think this makes the stock a unique opportunity for me. 

Its share price is up close to 3,000% in the past year, though it’s down from its February high of 284p to 158p as I write. This volatility is linked to the uncertainty of cryptocurrency prices, and is normally a red flag. However, I think some of this fall is down to early investors taking profits. 

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Argo Blockchain share price

The business is a “blockchain technology company focused on large-scale cryptocurrency mining.” Therefore, its future relies on cryptocurrency prices continuing to rise. And there’s no guarantee that they will. However, with Bitcoin soaring this year, half-year revenues grew by 180%. And last month, it mined 206 Bitcoins or Bitcoin equivalents.

But I have to say that this stock is risky. I think a key risk is that its profit margin is so unpredictable. While the cost of mining should remain stable, the value of what it mines isn’t. This means that if crypto prices fall drastically, Argo Blockchain could have to rely on loans until they rise to a profitable level again.

And crypto crashes aren’t uncommon. Bitcoin fell from £38,000 to £32,500 in the space of a week earlier this month. And anyone who invested in Dogecoin at its height on 7 May would have lost 65% of their investment by now. 

New loan facility

The company has recently extended its loan facility from Galaxy Digital LP by $25m to $45m. I think this is another risk for the business. The volatile nature of crypto means that a sudden fall could see Argo Blockchain unable to pay off debt.

However, it’s taken on the debt to fund an expansion. That’s generally an encouraging sign for a growth stock. It plans to use the money to build a new mining facility in Texas. Encouragingly, this new facility will run on renewable electricity. And with Elon Musk saying he’ll accept Bitcoin to buy Tesla cars again when it’s mined using clean energy, the investment could pay off many times over.

And Argo Blockchain is planning a listing on the Nasdaq, equivalent to 75m UK ordinary shares. If the listing is approved, it will raise roughly £100m, which would make its debt much less concerning.

Risks and rewards

Having covered the risks, I think the positives outweigh the negatives right now. Yes, there’s the potential for an economic downturn. But the new share offering should give the company the cash to wait out any dips in the crypto market. And its unique position in the marketplace means it will be well positioned for when a market resurgence comes.

In the US, firms such as AMC and UWMC are now accepting Bitcoin as payment. But in the UK, there’s just been a clampdown on crypto app Binance, so I accept that the regulatory ‘hands-off’ approach could end soon. But if cryptocurrency becomes more regulated, prices could increase in the long term. Institutional investors would be more likely to buy coins, driving the prices up. 

I think it’s worth buying a few shares for my portfolio. But while I might see a huge return, I know it’s a high-risk investment for me.

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Charles Archer owns shares of Tesla. The Motley Fool UK owns shares of and has recommended Tesla. 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.

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