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Penny stocks are notoriously volatile, and perhaps none more so than companies involved in cryptocurrency mining. London Stock Exchange-listed firm Argo Blockchain (LSE: ARB) is a prime example.
The share price has more than doubled since the beginning of January, to reach 15p today. Yet, that’s still a massive 80% decline from where the penny stock was trading one year ago.
So, should I invest in this Bitcoin mining stock today? Here’s my take.
Bitcoin price recovery
The Argo Blockchain share price is linked to the price of Bitcoin. In that context, the most important factor behind the company’s positive start to the year is the crypto market recovery, led by a 48% Bitcoin price rally relative to the value of sterling in 2023.
A return to a ‘risk on’ environment in crypto markets is good news for the firm. Several analysts are bullish on Bitcoin’s prospects as the digital currency approaches its next halving event in 2024. Historically, halving events have been bullish for the Bitcoin price.
Bitcoin is an extremely volatile asset. This translates into similar volatility for Argo Blockchain shares. When times are good, this can result in enormous gains, but when they’re tough, losses can be equally great. It’s a very high risk/reward stock in my view.
Positive momentum
In a recent encouraging development, the company regained its Nasdaq listing. To keep its place in the tech-heavy stock market index, closing bids for the firm’s American depository shares need to remain above $1 for 30 days.
After last year’s brutal crypto winter, Argo Blockchain breached this requirement. However, it regained compliance in January. This is important for the company’s reputation and to maintain exposure to institutional investors.
In addition, I also like the long-term ethos. The company aims to support the adoption and verification of blockchains with 100% renewable energy sources by 2025. Given Bitcoin mining’s environmental impact is a major drawback to investing in the industry, I’m pleased to see Argo Blockchain’s commitment to improving its ESG risk rating.
Challenges
I’m acutely aware that there are considerable risks facing this penny stock. The collapse of cryptocurrency exchange FTX last year is testament to how febrile the sector can be. Indeed, Argo Blockchain narrowly avoided bankruptcy itself in December by selling its Helios mining facility to Galaxy Digital Holdings for £54m.
In addition, the firm currently lacks clear leadership following the recent resignation of founder and CEO Peter Wall. His departure comes at a bad time considering US financial authorities are pursuing aggressive regulatory actions in the crypto market. As avenues into the country’s banking system are closed, some fear that the entire industry could be under threat.
Should I buy Argo Blockchain shares?
Argo Blockchain shares offer the potential for massive gains. Their stunning performance this year to date proves as much. The other side of the coin is the possibility of enormous losses, or even bankruptcy.
Overall, I view this penny stock as a very speculative investment. At present, I’m looking for lower risk stock market opportunities, so I won’t be buying Argo Blockchain shares today.
The content in this article is provided for information purposes only. It is not intended to be, neither does is 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
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