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Why has the Argo Blockchain share price been falling?

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The Argo Blockchain (ARB) share price has been falling lately, shedding 50% from its February high at one point this week. But it is still up over 2,900% in the past 12 months. Why has the Argo Blockchain share price been falling?

Here I consider two explanations – and what they could mean for the shares.

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The Musk effect

Argo isn’t the only cryptocurrency company to have suffered in the markets this week. After Tesla chief executive Elon Musk made widely publicised comments about the environmental impact of crypto mining, the markets took fright.

The car company said it would stop taking payment in Bitcoin, which dented confidence in the cryptocurrency. That matters for Argo, as it held 936 Bitcoin or their equivalent as of last month.

I see Musk as a loose cannon whose conflicting messages on cryptocurrency impact markets. That could weigh on the Argo Blockchain share price in future. Yesterday, Argo announced that it has signed the Crypto Climate Accord. That may reassure some investors. But I don’t think it is enough on its own to counteract the impact of Musk’s comments.

Valuation concerns

The wild ride of the Argo Blockchain share price over the past year also reflects questions about how best to value the company.

On one view, it is essentially a property landlord, as it operates a series of data centres in which clients can rent space. Indeed, on Thursday it confirmed the completion of its purchase of a couple of data centres in Canada. A property landlord is often valued by looking first at it net assets and using that as a basis to judge its future likely income streams.

But an alternative way of looking at this company in particular is to emphasise the possible value in its current and future cryptocurrency holding. Like a farm owner who has tenant farmers but continues to work some of his land himself, Argo is actively mining for cryptocurrency.

That is why it currently has a market cap of £580m while cash and digital assets at the end of its last financial year were only £6.7m. Its cryptocurrency assets increased in value in the first quarter, to £32.6m at the end of March, but that is still a significant valuation gap.

Bulls could argue that the valuation reflects the company’s fast growth rate and growing pile of Bitcoins. Bears might point to a risk of the share price falling if cryptocurrency prices drop, but also if the market decides to value Argo Blockchain based more on its reported assets.

I previously explained my valuation concerns about the Argo Blockchain share price. Even after the recent falls, investors like me maintain value concerns. There is a risk the share price could keep falling.

Where next for the Argo Blockchain share price

The Argo Blockchain share price looks to me like it could keep on falling.

The Musk effect isn’t the only reason it fell lately. I think underlying concerns about the valuation could also be in play. Given the risks, I don’t see the pullback as a buying opportunity for my portfolio.

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christopherruane has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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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