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Over the past month, the price of bitcoin has increased by 20%. By hitting new 52-week highs, the leading cryptocurrency is helping to boost the value of cryptocurrency-related stocks. For example, Argo Blockchain (LSE:ARB) shares are up an impressive 50% in the past month. So does it make sense to get involved in the cryptocurrency-related stock craze?
<h2 class="wp-block-heading" id="h-why-the-share-price-moves-like-bitcoin“>Why Stock Price Moves Like bitcoin
Over the course of the last few years, the Argo Blockchain share price has closely tracked the price of bitcoin (and, by extension, broader sentiment in the cryptocurrency market). The main reason for this relates to the commercial activities you carry out.
Argo Blockchain is a cryptocurrency miner. This means that it uses large amounts of energy to power computers that solve complex mathematical problems. As a result, it is capable of generating cryptocurrency, similar to mining a physical good.
Naturally, whatever the value of the coins is affects the company's income. If bitcoin is trading at $1, the business would go bankrupt quickly. If bitcoin skyrocketed to $100,000, the company would make record profits.
The stress of swings
Some argue that the risk of buying cryptocurrency stocks is the same as buying shares of gold mines or other commodities. I disagree.
The price of bitcoin and other major currencies is incredibly volatile. Over the past year, bitcoin is up 154%. However, let's not forget that the price fell from $51,000 in December 2021 to $17,000 in December last year. We just don't see that same type of wild swing in the price of gold.
This means that Argo Blockchain stock has been (and probably always will be) more volatile than other stocks you could buy. This can work in my favor, such as the fact that I would have doubled my money if I had invested a year ago. However, it also creates more stress, knowing that stocks move so quickly and erratically.
Summing it all up
Third-quarter financial results showed that adjusted EBITDA went from $1.1 million a year ago to $3.1 million now. Although revenue fell, profits increased thanks to lower costs and a better mining margin of 58%.
The reason I don't focus too much on financials is because the fate of stocks depends on cryptocurrency prices. Even if the company has tight control over costs and a really efficient mining rate, it doesn't really count for much if the price of bitcoin falls.
For investors, I think it means two avenues to consider. If an investor wants exposure to cryptocurrencies but does not want to purchase coins, Argo Blockchain stock is a viable alternative. However, for those who view this solely from a stock investing perspective, I don't think it makes sense. There are other stocks that I prefer that do not have such high volatility or are so dependent on an external factor for their success.
The content of this article is provided for informational purposes only. It is not intended to be and does not constitute any type of investment advice. bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry various risks, including complete loss of the money invested. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
