It’s been a rough couple of months for the Argo Blockchain (LSE:ARB) share price. After reaching an all-time high in February earlier this year, the stock has since been on a downward trajectory, losing over half its value. But it’s worth noting that even with this poor performance, the ARB share price is still up over 3,200% in the last 12 months.
Today the stock looks like it’s making a turnaround, as the share price has risen as much as 10% this morning. What’s behind this sudden growth? And is now the time to add some shares to my portfolio?
The surging Argo Blockchain (ARB) share price
I’ve previously explored Argo Blockchain’s business model. But as a quick reminder, the firm is a cryptocurrency mining business. Using powerful computers, the business solves complex problems and is rewarded with digital currencies like Bitcoin for its efforts. These digital assets can then be traded in a similar fashion to stocks.
Today, the management team announced that the construction of its new mining facility in Texas has begun. Once operational (which is expected to occur in the first half of 2022), it will expand Argo’s mining capacity by 200 megawatts (MW). What’s more, the site can be provided with a total of 800MW. Therefore there’s plenty of room for further expansion in the future.
This increase in capacity means more cryptocurrency can be mined faster, leading to higher profits. Needless to say, that’s fantastic news for shareholders, and so I’m not surprised to see the ARB share price on the rise. But there remain plenty of risks to consider.
The regulators are coming
As promising as this latest announcement is, Argo Blockchain still has a wide range of threats to contend with. The main one is regulation. The recent rise of cryptocurrencies has begun sparking some controversy. Due to the unregulated nature of these digital assets, governments have started clamping down on their use. China is the latest to join the list of nations to outright ban cryptocurrencies. And even the US Treasury is exploring ways to regulate these assets to prevent illicit activities like money laundering and tax evasion.
This is actually one of the main reasons why the price of Bitcoin has halved since April. Needless to say, this adverse movement is bad news for the ARB share price. After all, even with the increased mining capacity, revenues can’t grow if the price of cryptocurrencies like Bitcoin continues to fall.
The bottom line
My opinions on this business remain unchanged. It’s entirely possible for the ARB share price to explode to new heights over the long term. However, whether this will be achieved seems altogether dependent on the price of its underlying assets, namely Bitcoin.
Personally, the idea of investing in a business whose value is derived from something the management team has no control over doesn’t interest me. Therefore, I still won’t be adding Argo Blockchain to my portfolio today.
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Zaven Boyrazian 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.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.