Cryptocurrency mining stock Argo Blockchain (LSE: ARB) has been proving doubters wrong with its growth strategy these past few months. But can its confidence hold strong as time marches on? I think there are reasons for me to like this crypto stock and reasons to be wary.
Reasons to be bullish on ARB stock
Argo Blockchain’s CEO appears to focus on profitability, maintaining low levels of debt, and making strategic acquisitions. All encouraging signs a shareholder likes to see.
And for now, this is going well. In March ARB achieved record revenues of £6.6m, a rise of 53% on its February revenues. It also noted its interest in building a new 200-megawatt cryptocurrency mining facility in the next 12 months.
I think there’s a certain amount of luck involved in bitcoin mining, while having efficient mining rigs is vital, actually finding coins is another part of the puzzle. ARB struck it lucky in March as it mined 165 Bitcoin, up from 129 in February. This meant Q1 revenues came in at £13.4m.
Peter Wall, CEO said: “Argo has generated record mining revenue and profits for the third month in a row, making this quarter Argo’s best performing since the company’s inception.”
Risks to ARB shareholders
However, short-term growth is not everything. Looking at the bigger picture means thinking long term. We expect regulatory changes to the cryptocurrency ecosystem to come. For instance, Central banks are developing their own versions of digital money. If the value of Bitcoin plummets, then so will the ARB share price.
The costs of staying up to date are extortionate. Mining rigs are expensive and grow obsolete within a couple of years. Plus, the intensive use of electricity to power them is another bone of contention. And it gives cryptocurrency plenty of bad press regarding climate change initiatives.
Nevertheless, ARB is fighting back. It’s joining forces with Canadian tech firm DMG Blockchain Solutions to create Terra Pool, the world’s first bitcoin mining pool powered by clean energy.
Regardless of the above, Bitcoin isn’t limitless. There are currently over 18m BTC in existence and only 2.3m left to be mined. So, what will become of Argo Blockchain once all Bitcoin is found?
It may still receive some transaction fees, but its income will undoubtedly diminish. Of course, things will change as the Bitcoin ecosystem evolves and ARB may find other ways to generate revenues. But there are no guarantees.
In any case, finding the cryptocurrency becomes harder as time goes on because the rate of new BTC coming into circulation halves every four years. While this isn’t a big deal if the value is rising, it’s an issue if the price crashes. Last year Argo Blockchain’s profit slumped in the first half, as crypto prices fell and a halving event took place.
A volatile stock
Junior stocks like ARB are highly volatile and therefore considered risky investments. While they can bring incredible share price hikes in a short space of time, their demise can be equally fast and furious.
This stock is clearly a favourite of day traders and speculative investors. And I think it makes sense that the ARB share price will prosper as long as Bitcoin is thriving. But I’m not convinced it has what it takes to thrive far into the future. I won’t be investing in it.
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Kirsteen owns Bitcoin. The Motley Fool UK owns shares of and 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.