The Argo Blockchain (LSE: ARB) share price has grown in value in both the short and longer term. Over the past week, the share price has moved up over 90% and is currently trading around 244p. If we look at the performance over the past year, it’s even more impressive. The share price in early February 2020 was around 6.5p. For much of last year, it stayed around this mark, before really taking off in December.
My colleague Tom Rodgers wrote only yesterday that a £5,000 investment made a year ago would be worth £92,000 now. But the Argo Blockchain price has spiked significantly even since then. Of course, this situation is very rare, and I shouldn’t expect this kind of return on all of the stocks that I buy. So what are the reasons behind this bump higher recently?
Argo shares and cryptocurrency correlation
The first reason why the share price has gained, and particularly this week, is its correlation with cryptocurrency. Argo Blockchain is basically a software company that facilitates the mining of cryptocurrency. It also builds on blockchain technology, which helps to record and facilitate transfers and payments. Due to the nature of business, it has started to show a strong similarity to the performance of currencies like Bitcoin and altcoins.
Bitcoin is closing in on $50,000 after gaining in the past week. Altcoins such as Dogecoin have also delivered high percentage returns in a matter of a few days. Without commenting on the viability of cryptocurrency in general, it’s logical to assume that the Argo Blockchain share price performance will continue to mirror to some degree the movement in cryptocurrency. Of course, we mustn’t forget that those movements could be sharply down as well as up.
The second reason why Argo Blockchain shares have gained is recent news on more mainstream adoption of blockchain and cryptocurrency. Last week, Tesla announced that it had bought $1.5bn worth of Bitcoin and that soon it would allow customers to buy cars using Bitcoin as a payment method. MasterCard also has confirmed that it will start to facilitate cryptocurrency payments this year. These payments need to operate on blockchain technology, hence why Argo Blockchain will see demand.
Finally, Argo Blockchain shares have gained on news of expansion in the US. Argo is planning on establishing a 200MW facility in Texas, that will allow it to boost mining capacity. This is seen as a positive move, not only as more capacity is needed, but also as this long-term investment (costing $17.5m) is perhaps a sign of a sustainable business.
It’s also planning to raise some of these funds via a new share issuance. Such a share fundraising usually happens when a company has confidence that investors want to buy it. Otherwise it could seek finance through debt markets instead.
The Argo Blockchain share price has potential to rally even further, if more companies announce acceptance of blockchain. However, I need to be aware that if major cryptocurrency markets have a slump, Argo shares will likely follow suit. It’s a volatile stock and should be treated as high-risk.
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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Mastercard and 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.