In 2021, the Argo Blockchain (LSE:ARB) share price exploded on the back of skyrocketing cryptocurrency prices, delivering triple-digit returns for early investors.
But since then, this momentum seems to have evaporated. Why? Because in the last 12 months, the market capitalisation has been slashed by over 70%. What happened? And is this a buying opportunity for my portfolio? Let’s explore.
The plummeting ARB share price
But as a quick reminder, Argo Blockchain is a cryptocurrency mining group specifically focused on Bitcoin. With the digital asset seeing its price explode last year, it’s not surprising that the stock behaved similarly.
Since then, the cryptocurrency market seems to be facing several headwinds on the regulatory front. Several countries, including the US, have either outright banned the currency or begun exploring regulatory restrictions. And with general market volatility on the rise, prices have been falling.
Given that Bitcoin is this business’s primary asset and product, it’s not surprising to see the ARB share price follow suit. Even more so when looking at the latest operational update. In February 2022, the group successfully mined 135 Bitcoin. But this was down from 172 the month before.
The drop seems to have been triggered by two primary factors. The first is a general increase in mining difficulty due to rising competition from rival miners. The second is due to the group’s energy curtailment agreements.
Since cryptocurrency mining requires a lot of electricity, the company has negotiated lower rates with energy suppliers in exchange for agreeing to limited usage during periods of high consumer demand. Given cold winter conditions in Quebec, its mining facilities couldn’t run at full capacity, contributing to the drop in production.
Combining falling Bitcoin prices with a reduced output isn’t exactly a recipe for high growth. And since both of these issues are likely to occur again in the future, I’m not surprised to see the ARB share price suffer.
Like any regular mining business, Argo Blockchain’s fate ultimately depends on the demand for its primary commodity – Bitcoin. Despite the vast number of proponents for the cryptocurrency, there remains an enormous level of uncertainty. However, let’s assume Bitcoin does reach the substantial long-term price targets some analysts are forecasting. In that case, Argo Blockchain might be in a favourable position.
In 2021, its mining margins sat above 80%, making it an industry leader. In February, those margins fell to 71%. But if the price of Bitcoin recovers, the margins will undoubtedly do the same. After all, mining Bitcoin has largely fixed costs. And with the construction of the group’s new Texas facility currently on track, revenue and profits could be set to surge over the long term. Needless to say, that would be a pretty powerful catalyst for the ARB share price.
Time to buy?
All things considered, my opinion on this business remains unchanged. I can’t deny the possibility of enormous growth over the long term. But this seems entirely dependent on external factors, which the firm has virtually no control over.
Personally, I’m not interested in adding this sort of risk to my portfolio. Therefore I won’t be buying any shares today.