The Bitcoin price fell below a key support level of $20,000 over the weekend. This drop has compounded the losses of the largest crypto coin, which is now down 48% over the past year. As a crypto mining company, Argo Blockchain (LSE:ARB) is heavily impacted by the price of Bitcoin and other crypto coins. So should I stay away from buying Argo Blockchain shares at the moment?
The crypto correlation
The share price of Argo Blockchain is down almost 73% over the past year, mirroring the slump in the Bitcoin price. Regardless of what the business does, it will always have a strong correlation to the price of Bitcoin and crypto in general.
For example, consider the fact that in its 2021 full-year report, Argo Blockchain said it mined 2,045 Bitcoins. To assign a revenue figure to this, I’d multiply 2,045 by the price of a Bitcoin at that time. Now if Bitcoin is still at $20k when the 2022 report is calculated, the business will have to mine significantly more Bitcoins just to keep the same revenue figure!
This problem isn’t just faced by Argo Blockchain. Commodity and mining stocks have to contend with fluctuating oil, gold, and other prices. Yet crypto is much more volatile in nature.
As another case in point, the value of the balance sheet for Argo Blockchain has also fallen. As of March, it held 2,700 Bitcoins, valued at $122.9m, as an asset on its books. Currently, the same holdings would be valued at $59.4m. The movement has therefore reduced the overall value of the business.
Buying Argo Blockchain shares cheap
Based on the Bitcoin fall, it’s no surprise to me that the Argo Blockchain share price has fallen to reflect the lower revenue and valuation metrics of the company. Yet my thinking now turns to whether the fall has reached a bottom.
I think there are two reasons why I might justify buying shares in the company right now. Firstly, it’s possible the crypto crash is finally coming to an end. In this is the case, a rally in the Bitcoin price would naturally provide an uplift that Argo Blockchain could take advantage of. If this is the start of a long-term bull run, then the upside could be huge.
The second reason is company specific. The market capitalisation has fallen to just £170m, with a price-to-earnings ratio of 4.48. This indicates to me that the company is undervalued at the current price. The company does have assets that aren’t exposed to the movements of crypto prices. These include intellectual property, mining equipment, and more. So the share price will have a natural floor given this value.
I am excited about buying shares in the crypto miner at cheap levels. But I don’t think the crypto crash is over yet. Therefore, I’m going to sit on the sidelines for the moment and be patient.