As an investor, it can be difficult to decide which stocks to buy first. The London Stock Exchange lists over 1,000 different stocks from over 100 countries. This means that you can choose from a wide variety of companies, industries and trends. It’s daunting to say the least.
I like to have a long-term investment strategy, which means that I choose to buy stocks of companies that I think will be here well into the future. They are usually FTSE 350-listed companies or established American brands such as Amazon.
Nonetheless, I often let myself be seduced by momentum stocks in exciting new sectors. Argo blockchain (LSE: ARB) is one such stock. It digs for the famous cryptocurrency Bitcoin and became famous last year when the price of Bitcoin skyrocketed. But it’s extremely volatile and while the dynamics can be tempting I think it’s wise to look at the bigger picture of investing.
A fluctuating share price
Argo Blockchain is a stock on a roller coaster ride. As a bitcoin miner, it closely follows the development of the bitcoin price. This explains the insane volatility this stock has experienced over the past year.
In fact, the price of Argo blockchain stock has hit a 52-week low of 3.4p and a 52-week high of 339p. Today it trades just above 130p which, in my opinion, is due to the suppressed Bitcoin price.
Mirroring the volatile price of Bitcoin
Argo Blockchain’s market cap is now £ 508 million. Each bitcoin is worth around £ 23.7,000, so at today’s price there would have to be over 22,000 bitcoins to match its current value.
May had its best month yet, mining 166 bitcoin, bringing its year-to-date total to 716 bitcoin. This is worth £ 17 million at today’s BTC price.
Therefore, to justify its current market capitalization, investors are betting that the company will mine much more Bitcoin in the future and that the BTC price will rise.
Cryptocurrency is speculative
In theory, either could happen. But it’s a speculative situation. Governments are cracking down on cryptocurrency, with China in particular taking a tough line.
The story goes on
To stay relevant and on the cutting edge of Bitcoin mining, it requires the best mining rigs money can buy. Argo Blockchain currently has excellent rigs, but these are there fast and cost a lot to update.
It also has several competitors. Riot blockchain is a significant US market with a market capitalization of $ 2.7 billion. And Riot has already spent $ 145 million this year on state-of-the-art Bitmain mining equipment that it will implement in the coming months. This will double its capacity to mine.
Still, there are some investors who have great confidence in the Argo Blockchain. Late last month, hedge funds BlackRock took a small stake, which gives it credibility.
I’m not tempted to invest in Argo Blockchain because I find it way too speculative. I’d rather add DS Smith, Tesco, or Amazon shares to my shares and shares ISA today.
Is Argo Blockchain (LSE: ARB) a Stock I Would Buy? first appeared on The Motley Fool UK.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kirsteen owns shares in Amazon and Bitcoin. The Motley Fool UK owns and recommends Amazon and Bitcoin stocks. The Motley Fool UK recommended DS Smith and Tesco and recommended the following options: long January 2022 calls $ 1,920 on Amazon and short January 2022 calls $ 1,940 on Amazon. Views about the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make on our subscription services such as Share Advisor, Hidden Winners, and Pro. At The Motley Fool, we believe that taking a variety of insights into account makes us better investors.
Motley Fool Germany 2021