Over the past month, the Bitcoin price has jumped 20%. In hitting fresh 52-week highs, the main crypto coin is helping to boost the value of crypto-related stocks. For example, Argo Blockchain (LSE:ARB) shares are up an impressive 50% in the past month. So does it make sense to get involved in the crypto-related stock craze?
Why the share price moves like Bitcoin
Over the course of the past few years, the share price for Argo Blockchain has closely tracked the Bitcoin price (and by extension the broader sentiment in the crypto market). The main reason for this relates to the business activities it conducts.
Argo Blockchain is a cryptocurrency miner. This means it uses vast amounts of power to fuel computers to fix complex mathematical problems. As a result, it’s able to generate crypto coins, similar to mining for a physical commodity.
Naturally, whatever the value of the coins are impacts the revenue for the firm. If Bitcoin trades at $1, the business would pretty quickly go bust. If Bitcoin soared to $100k, the company would have record profits.
The stress of the swings
Some argue that the risk in buying crypto stocks is the same as buying gold-mining stocks or other commodity shares. I disagree.
The price of Bitcoin and other major coins is incredibly volatile. Over the past year, Bitcoin is up 154%. Yet let’s not forget that the price fell from $51k in December 2021 to $17k in December last year. We simply don’t see that same kind of wild swing in the price of gold.
This means that Argo Blockchain shares have been (and will likely always be) more volatile than other stocks I might buy. This can work in my favour, such as the fact that I’d have doubled my money if I’d invested a year ago. Yet it also provides more stress, knowing that the stock moves so quickly and erratically.
Summing it all up
The Q3 financial results showed adjusted EBITDA jumping from $1.1m a year ago to $3.1m now. Even though revenue fell, profit moved higher thanks to lower costs and a better mining margin of 58%.
The reason why I’m not too focused on the finances is because the fate of the stock is driven by cryptocurrency prices. Even if the firm has a tight control over costs and a really efficient mining rate, it doesn’t really count for much if the Bitcoin price falls.
For investors, I think it means two avenues to consider. If an investor wants to get exposure to crypto but doesn’t want to buy coins, Argo Blockchain shares are a viable alternative. Yet for those that are looking at this purely from a stock investing perspective, I don’t think it makes sense. There are other shares I prefer that don’t have such high volatility or that are dependant on an external factor for success so much.
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.
