Argo Blockchain (LSE: ARB) shares have been a winner in the recent Bitcoin rally. However, the stock has recently pulled back somewhat, possibly due to profit-taking and the fall in the Bitcoin price.
The shares have rocketed from 12p at the beginning of December to 126p in the first week of trading 2021. After this stellar rise, should I buy Argo Blockchain shares now?
I think I should, but that I also need to proceed with caution. Let me explain my reasons.
Cryptocurrency rally
It’s not hard to see why Argo Blockchain shares have rallied. The demand for cryptocurrencies such as Bitcoin has gone through the roof. The popular cryptocurrency surged to a recent new record high of $41,000. In March 2020, Bitcoin was worth over $5,000.
We’ve seen this all before. Back in 2017, Bitcoin grabbed headlines as the sector ballooned into a distinctive bubble. This lead to a raft of start-ups launching alternative cryptocurrencies to rival Bitcoin.
Argo Blockchain is a cryptocurrency miner. This means that the higher the demand for the digital assets, the greater the need for mining and hence the use of Argo Blockchain’s services.
Is this a bubble again?
No one knows if this is a cryptocurrency bubble. I and most investors have no idea where the the price of Bitcoin is going over the next few days, never mind the rest of 2021. Since Argo Blockchain shares have tracked the Bitcoin rally, no one can predict the stock price.
What I do know is that there’s a fundamental reason, which I’ll explore next, for the cryptocurrency rally and hence the run in Argo Blockchain shares.
The real reason
In my opinion, the real reason why cryptocurrencies such as Bitcoin have performed strongly is they’re seen as a diversifier in a portfolio.
The rally has been partly driven by bigger institutional investors entering the lucrative market. But why are they buying the cryptocurrency?
These cryptocurrencies are now perceived as digital assets that could hedge inflation and act as a safe haven like the precious metal, gold. No wonder investors are referring to Bitcoin and the other rival cryptocurrencies as the new ‘digital gold’.
High profile investors
The investment banking giant JP Morgan is bullish on cryptocurrencies. Last week it announced a long-term price target on Bitcoin of $146,000.
Another high-profile investor is the American hedge fund billionaire, Paul Tudor Jones. He is a Bitcoin believer, and has purchased the cryptocurrency for its gold-like properties.
So what now for Argo Blockchain?
Simply put, if the high demand continues for cryptocurrencies then Argo Blockchain shares are likely to rise. The company provides the infrastructure and services to mine the digital assets. The recent operational updates from Argo Blockchain have been positive.
So would I buy now? Yes but with caution. I prefer Argo Blockchain shares to buying Bitcoin directly. I believe in the long-term story for cryptocurrencies but it’s going to be a rocky road ahead.
I expect Argo Blockchain shares to be volatile and would only consider a small investment in a well-diversified portfolio. This way I have the best of both worlds. I can reduce my risk and have exposure to a lucrative technology.