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Could a Bitcoin ETF help the Argo Blockchain share price?

New virtual money concept, Gold Bitcoins
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Last week, the market was rife with speculation that the US Securities and Exchange Commission (SEC) would approve a Bitcoin exchange-traded fund (ETF). And by the end of the week, the regulatory agency had approved a Bitcoin Futures ETF. Such a development is a step in the right direction for the cryptocurrency industry, and as a result, may have a positive impact on the Argo Blockchain (LSE: ARB) share price. 

I say it may have a positive impact because it is challenging to tell how much of an effect a Bitcoin Futures ETF will have on the cryptocurrency market.

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A regulated, easy-to-trade financial product like an ETF will open the market to thousands of institutional investors who may not be able to purchase cryptocurrency directly. 

However, it could also have its drawbacks. A large ETF would introduce more buyers and sellers to the market, potentially leading to more volatility. And also, in its current state, the ETF only provides exposure to futures, not the cryptocurrency directly. Still, it shows the SEC is open to the sector and could provide a path to a direct ETF further down the road.

But where does Argo Blockchain fit into all of this? The cryptocurrency miner helps fill a fundamentally important part of the Bitcoin infrastructure.

Bitcoin ETF boom 

So-called Bitcoin mining is the process of verifying each transaction. The miner is rewarded for doing this with the potential to earn newly created coins. In theory, more transactions should lead to more rewards and higher transaction fees paid to miners. 

That is the theory anyway. In practice, the system is a lot more complex and is based on factors outside of Argo’s control. Miners around the world must compete to take part in the process.

The hashrate is the speed at which a miner can solve the mathematical problem for a previous transaction. This rate can increase and decrease depending on the number of machines worldwide working on the same problems. 

Earlier this year, the global hashrate dropped as China cracked down on cryptocurrency mining. Thanks to this, Argo benefited as its machines had less competition.

The company’s interim results release issued at the beginning of August noted that “significant changes in mining difficulty led to a substantial decrease in the global hashrate, resulting in an increase in the number of Bitcoin Argo mines with the same hashpower.

A Bitcoin ETF could increase the number of transactions, which could be good news for Argo. However, if it attracts more competition to the sector, this benefit could fall away.

Outlook for the Argo Blockchain share price

Nevertheless, I think the Argo Blockchain share price outlook will improve thanks to this step forward. As one of the most established players in the sector, the group may be able to capitalise on rising interest in crypto. 

Based on this, I would buy a small speculative position in the company for my portfolio today. This might not be suitable for all investors, considering the risks of investing in cryptocurrency. It is still a relatively underdeveloped and unregulated space, and there is no guarantee a Bitcoin ETF will revolutionise the sector. That is something I will be keeping in mind as we advance. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin. 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.

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