The Argo Blockchain (LSE:ARB) share price has been on fire over the past year, increasing by over 4,500%! That is quite an exceptional amount of growth, so what is causing it? And should I be adding the company to my growth portfolio? Let’s take a look.
What does the business do?
Argo Blockchain operates in a similar fashion to a mining company. But instead of extracting minerals and metals from the ground, it focuses on cryptocurrencies – specifically Bitcoin and Zcash.
The technical process behind mining cryptocurrencies is quite complicated. But put simply, miners use computing power to solve complex problems and receive digital tokens (like Bitcoin) as a reward. Miners can then sell these tokens on various exchanges, and use the proceeds to cover equipment and utility expenses as well as to reinvest in the expansion of the business.
Why has the Argo Blockchain share price exploded?
When a share price surges or collapses by a substantial amount, it is typically linked to a new piece of information about the underlying business. For example, the release of an earnings report or the announcement of a new acquisition.
However, in the case of Argo Blockchain, none of these typical triggers seems to have occurred. Even the management team have released a statement saying they see “no fundamental reason” for the surging share price. So what is going on?
Like most mining stocks, the primary driver of the company’s financial performance is the market price of the commodity it produces. Cryptocurrencies have seen an enormous level of growth over the past year, with Bitcoin and Zcash prices increasing by 530% and 200%, respectively.
So then the question becomes, why is the price of these digital assets increasing? As far as I can tell, the recent price movement is due to the accelerated adoption of the technology. Financial transactions on PayPal’s platform can now be completed with cryptocurrencies. Meanwhile, several large organisations, like Tesla and even The Motley Fool, have begun buying these digital assets as a form of long-term investment.
Needless to say, this has created a fantastic environment for Argo Blockchain and its share price to thrive in.
Is now the time to buy?
Despite Argo Blockchain’s impressive growth so far, I am not interested in owning the shares. Why? Because the firm doesn’t appear to have any substantial competitive advantages.
Beyond the initial equipment costs, the barriers to entry for a cryptocurrency mining business are virtually non-existent. Setting up a mining rig doesn’t require that much technical knowledge. There are no patents preventing competitors from copying the business in its entirety. And since it has no control over its digital assets’ market price, branding doesn’t grant any tangible advantage either.
Therefore, I won’t be adding this stock to my growth portfolio anytime soon. But I think it’s still an interesting story to follow.
Zaven Boyrazian does not own shares in Argo Blockchain. Zaven Boyrazian owns Bitcoin, and shares in PayPal. The Motley Fool UK has recommended Bitcoin. 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.