The Argo Blockchain (LSE:ARB) share price has been on fire these past few months, increasing by over 4,000%! 

But why is this happening? And should I be adding it to my growth portfolio?

Argo Blockchain’s surging share price

Before exploring why the Argo Blockchain share price has skyrocketed recently, let’s look at what the business actually does. 

It is a cryptocurrency mining firm. Argo operates large scale data centres designed for the sole purpose of mining Bitcoin and Zcash. These digital currencies can then be sold on exchanges to transform them into more traditional currencies. Subsequently this money be can be used to expand their mining capabilities.

The business model operates in a nearly identical way to that of gold miners, except without the need to dig into the ground and extract minerals. Thus their operational expenses are relatively low, although the electric bill isn’t.

Typically large share price moments of this scale only occur when a drastic positive change occurs within the business. However, that doesn’t appear to be the case with the Argo Blockchain share price. In fact, the management team have recently made an announcement stating that they see “no fundamental reason” for its recent movements. So what’s going on?

Bitcoin is on the rise

As previously stated, Argo Blockchain is mining and selling cryptocurrencies across exchanges. This means that its financial performance is primarily driven by the underlying price of its assets.

Therefore the only sensible explanation I can see for the rising price is linked to Bitcoin’s price smashing past $50,000. Bitcoin has been climbing for some time now. This growth has only been accelerated by the announcement that several US fintech stocks, such as PayPal and Mastercard, plan on supporting the cryptocurrency on their respective platforms. 

Tesla has also announced its intention to allow customers to use Bitcoin to buy its products in the future and even took a step further by investing $1.5bn in Bitcoin directly.

Argo Blockchain share price: time to buy?

Personally, I won’t be investing in Argo Blockchain any time soon. Why? Because it does not appear to have any competitive advantages that will prevent rival firms from stealing market share in the future.

The value of its assets (Bitcoin) is determined by the market, not the company. Therefore, it has no pricing power. The barriers to entry are virtually non-existent since almost anyone can set up a cryptocurrency mining rig fairly quickly (It took me about 30 minutes to do on my own computer). And lastly, I don’t see any network effects being formed.

Combining this with a £1bn valuation, even though the forecasted revenue for 2021 is expected to be around £30m, makes Argo Blockchain a company I won’t be adding to my portfolio.