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The Argo Blockchain share price soared as cryptocurrencies rallied! Here’s what I’m doing now

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Unless you’ve been living under a rock over the past couple of months, you’ll have seen the major rally in cryptocurrency. Only one month ago, the Bitcoin price was around $18,000. It rose to $40,000 before crashing yesterday but stayed well above that $18k figure. The concept of investing in cryptocurrency is fast becoming more mainstream. I even saw an advert on the London underground last week promoting it. In the world of stocks, companies linked to the industry are also seeing large share price gains. For example, the Argo Blockchain (LSE:ARG) share price has exploded from 10p a month ago to just below 100p.

Cutting through the jargon

Before I can make an informed choice on whether to buy Argo Blockchain, I need to understand some key concepts. A blockchain is essentially a ledger of transactions. The technology can be used to make significant amounts of payments in a process that is argued to be quicker, cheaper and more efficient than traditional methods. Cryptocurrencies (of which Bitcoin is one) are virtual currencies that can use blockchain technology to be created, traded and stored. You can ‘mine’ in blockchain transactions, digging to verify payments and adding transaction data into the public domain, for which you can get paid.

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The viability of Argo

Now we’ve established that, is the spike in the Argo Blockchain share price simply investors wanting to jump on the cryptocurrency bandwagon? In my opinion, it’s 50/50. Some of the people investing right now are only doing so because ‘blockchain’ is included in the company name. You’ll also be getting some people buying because they prefer to buy a stock rather than Bitcoin. This might make them feel it’s a safer way to get exposure to the industry.

Others, I think, are looking at it from a smarter angle. Argo Blockchain is the only listed mining firm of its type in the UK. The computer programs it uses make it advanced in the field of cryptocurrency mining and blockchain algorithms. So if you aren’t convinced by the volatile prices of an individual coin, buying Argo allows a more diversified investment. I say this because the Argo Blockchain share price can still rise even if the Bitcoin price stays where it is for a year. After all, Argo is a legitimate business that generates revenue, has costs, employs people and so on.

Does the Argo Blockchain share price have potential?

The company is still in a high-growth stage. H1 2020 results showed incredible percentage growth, but it’s all relative. Earnings before interest and tax were up 96%, but were still only £3.23m. Compare this to the current market capitalisation of £363m due to the share price surge. Reading through the results, there’s a clear disconnect between the share price and the finances.

Technically, there’s nothing wrong with this, especially for high-growth technology firms. Other firms have a larger market capitalisation than Argo, and make losses! It all depends on whether you believe enough in the future of the business to justify the high valuation. Ultimately, I don’t and so won’t be investing in Argo. It’s high risk and high reward. It’s paid off over the past month, but the double-digit share price drop yesterday highlights how sensitive and volatile anything related to cryptocurrency can be.

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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.