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The Argo Blockchain price jumps above 300p! Can the rally continue?

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The Argo Blockchain (LSE: ARB) price has continued its impressive rally this week. Since Monday, shares in the company have risen by more than 50%, taking its market value to over £1bn.

Following this performance and gains seen since the beginning of the year, shares in the cryptocurrency miner have gained nearly 570%.

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This outstanding performance seems to have even caught the company’s management off guard. It recently put out a statement saying it knew of no fundamental reason why the shares had risen and wasn’t aware of any material developments beyond those previously notified to the market.

This is pretty standard practice when a company sees a sudden increase in its share price. It stops investors from accusing management of hiding something from the market. 

Bitcoin takes off 

I think it’s pretty clear why the Argo Blockchain price has increased in value so substantially over the past few days. The price of Bitcoin smashed through the $50,000 mark this week, following news that several large US institutions would start allowing transactions in the cryptocurrency. 

Argo’s shares have become somewhat of a proxy for the currency in recent months. As Bitcoin’s value has risen, so have the firm’s shares. 

This makes sense because the company’s fortunes are tied to that of the Bitcoin price. At the end of December, Argo said it held 501 Bitcoin and Bitcoin Equivalent (BTC).

It also recently announced plans to acquire 320 acres of land in West Texas, US, where it intends to build a new 200-megawatt cryptocurrency mining facility

Last year, the group mined around 2,400 BTC, and mining rose to nearly £1.5m a month at the end of the year. 

The Argo Blockchain price outlook 

Based on all the above, it seems to me the Argo Blockchain price will continue to increase if the Bitcoin price continues to rise. That would translate into increased revenues for the miner and increase the value of the assets on its balance sheet. 

However, it’s impossible to say if Bitcoin’s value will continue to increase. As is the case with any asset, past price performance should never be used to guide future returns. So, just because the value of the cryptocurrency has increased substantially over the past few years doesn’t mean it’ll continue to do so. 

There’s also no guarantee the Argo Blockchain price will continue to increase from current levels. There’s already a lot of expectations baked into its current valuation. The UK’s most expensive blue-chip tech stock is currently changing hands at 14 times sales. Argo is presently dealing at around 42 times sales. That’s 3.5 times more expensive. The company’s revenues would have to hit nearly £6m a month to take the valuation to 14 times sales. 

Of course, this isn’t impossible. With the rising Bitcoin price and the company’s increased mining capacity, it may hit this target shortly. But the Argo Blockchain price is too speculative for me right now. That’s why I’m not a buyer of the stock today.

However, it could be suitable for an investor with a higher risk tolerance who’s comfortable with investing in crypto. 

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Rupert Hargreaves 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.

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