The Argo Blockchain (LSE:ARB) share price has gone stratospheric! The London-listed Bitcoin miner has added an incredible 1,600% to its share price in the last three months. So what’s behind this supersonic rise?
There is no such thing as an ETF tracking the Bitcoin price. This would be the normal way for most investors to get exposure to large rises in the cryptocurrency sector.
But the Financial Conduct Authority takes a dim view of Bitcoin. In fact, in October 2020, it banned financial providers from selling Bitcoin derivatives, like futures and options, to retail investors.
So Argo Blockchain is one of the very few UK shares that offers investors relatively direct exposure to the Bitcoin price.
Bitcoin price breaks records
As I write this, the Bitcoin price has hit $37,000 (£27,180). There are a number of macro factors behind the rise. They include unlimited central bank money-printing. But in the main, the price rise itself has become a self-fulfilling prophecy, as private investors are struck with a Fear Of Missing Out.
The exact same thing happened during the last Bitcoin price boom of 2017. As the price skyrocketed, fortunes were made. Other investors piled in, wanting a piece of the action.
Today, buying Bitcoin itself is easier than ever.
But it still comes with significant hassles over where to store the cryptocurrency securely. So most UK investors will turn to what they know best: company shares. Hence the Argo Blockchain share price rise.
What does Argo Blockchain do?
The main market-listed Argo Blockchain run a cryptocurrency mining operation out of its centre in London.
This is basically a room full of very fast and very expensive computers all solving complex mathematical equations in a bid to be rewarded in Bitcoin.
And because Argo Blockchain holds Bitcoin directly and reports that number on its balance sheet, this is a relatively easy company to value.
In a 5 January market update, Argo reported higher revenues on better margins (60% vs 57% in November) from its cryptocurrency mining operations. It added a strongly positive outlook for 2021 too.
Argo said it mined 96 Bitcoins in December 2020. And that it held 209 Bitcoins and equivalents, which today are worth $7.8m (£5.7m). As the value of Bitcoin rises, so do the assets on the company’s balance sheet, and the Argo Blockchain share price in tandem.
Where next for the Argo Blockchain share price?
For the year ending 31 December 2019, Argo’s revenue increased more than 10-fold from £765,000 to £8.6m.
There are significant risks ahead, of course. The Argo Blockchain share price depends heavily on whether Bitcoin can sustain its massive bull run. If the price were to crash, the value of Argo Blockchain’s assets would plummet. It’s highly likely in this case that the Argo Blockchain share price would fall too.
Fool investor favourite Warren Buffett famously called Bitcoin “rat poison squared“. But institutional investors are swiftly changing their tune. Even JP Morgan Chase, whose CEO Jamie Dimon called Bitcoin “a fraud“, now has its analysts predicting a long-term cryptocurrency price target of $146,000 per coin.
Plans to switch its US listing to OTCQB, the middle-tier of the OTC markets, would help with liquidity. And Argo has a plan to bring many more cryptocurrency mining machines online in February.
Still, it could all come crashing down. If I held Argo Blockchain I’d definitely take profits on the way up to de-risk my investments.
TomRodgers owns Bitcoin but has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.