When I last covered Argo Blockchain (LSE: ARB), the crypto market looked very different. Bitcoin has since fallen over 30%, with many other popular coins following a similar bearish trajectory. With Argo relying so heavily on Bitcoin prices, a bearish crypto market doesn’t bode well for the Argo Blockchain share price.
Argo Blockchain share price history
The share price has skyrocketed in the past six months, delivering 1,200% returns. However, shorten this trajectory to three months and the stock has more than halved in value. Today alone the stock has fallen over 6%! So, what’s going on? This volatility is largely in line with the crypto market’s movements – upon which Argo’s business is heavily reliant.
I had a closer look at its business in my previous article, but in a nutshell, the firm mines and sells crypto. To be more specific, it uses thousands of high-powered computers to solve cryptographic problems and earn Bitcoin and Zcash in reward. It then sells these coins on exchanges, making a profit. Hence, if the price of Bitcoin and Zcash go down, so do Argo’s revenues.
Crypto market problems
Tesla CEO Elon Musk has a big part to play in all of this. In the past, Musk has been a keen advocate of cryptocurrency, publicly announcing Tesla’s $1.5bn holdings of Bitcoin. However, his past optimism seems to have turned sour, as he recently highlighted the environmental concerns of the coin are too great to continue allowing Tesla to take it as a payment option.
It seems odd that one person can influence such a huge market, but in the 24 hours after releasing the statement, Bitcoin’s price tumbled over 10%. The fact that the Argo Blockchain share price is so heavily reliant on the crypto market, and the crypto market can be so easily influenced by Musk, is a big warning sign for me.
In addition to this, the Chinese government announced it would be banning banks and payment firms from using cryptocurrencies. This news coupled with Musk’s concerns sent the markets haywire, and led to falling Bitcoin prices.
Positive future outlook?
Argo Blockchain has since announced it will be joining the Crypto Climate Accord, which aims for zero net emissions from electricity consumption by 2030. This is a definite positive for investors moving forward.
The firm has also announced the purchase of two additional mining centres, which are likely to help it massively ramp up production. However, the constantly fluctuating price of the asset it mines and sells means that revenue is always subject to change, regardless of the actual amount of currency mined. This can be seen by April results, where the amount of Bitcoin mined fell from 165, but revenues were raised by £130k. This revenue instability is another red flag for me.
The crypto market has since staged a short-term recovery, pushing up the Argo Blockchain share price. It’s clear Argo has its eyes set on expansion in the coming years, but even if production is upped tenfold, this means nothing if crypto prices aren’t stable. For this reason, I will be maintaining my scepticism and steering clear of Argo Blockchain for the foreseeable future.
Dylan Hood owns shares in Tesla. 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.