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Argo Blockchain shares: 5 things I’d consider before buying

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Argo Blockchain (LSE: ARB) shares are very popular right now. It’s understandable given how cryptocurrencies have recently dominated headlines. Even Hargreaves Lansdown investors are buying. The stock is within the top five most purchased shares on the platform.

So is the hype worth it for me? Should I buy Argo Blockchain shares? Here are five things I’m considering before taking the plunge.

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#1 – What does Argo Blockchain do?

Argo Blockchain is a cryptocurrency mining service provider. This means that the company is a global data centre business that provides a powerful and efficient platform for the mining of leading cryptocurrencies, including Bitcoin.

The company also offers enterprise-scale mining-as-a-service to institutional investors looking to invest in cryptocurrencies. It’s run by a group of technologists, engineers and entrepreneurs.

#2 – Argo Blockchain shares are linked to cryptocurrency

This may seem obvious, but I think it’s worth noting. Argo Blockchain shares are linked to the performance of cryptocurrencies, in particular the most popular one, Bitcoin. The company deals with the mining of cryptocurrencies and hence demand for the digital currencies will impact the stock.

So if Bitcoin is performing well then it’s most likely Argo Blockchain shares will rise. This also works the other way. If Bitcoin is falling it’s most likely the stock will tumble.

#3 – What’s driving the cryptocurrency demand?

Although Argo Blockchain shares have fallen from their all-time highs, the stock has had a phenomenal run. What has driven this rise is the increased demand for cryptocurrencies. I reckon there are a few things that have fueled the cryptocurrency boom.

Digital currencies like Bitcoin are now seen as a diversifier in a portfolio. Many investors are looking for alternative assets to invest in especially during a global pandemic. I think these cryptocurrencies are perceived by some as digital assets that could hedge inflation and act as a ‘safe haven’ like precious metal gold.

#4 – Stark warning from the regulator

While there are some investment banks, such as JP Morgan that are bullish on Bitcoin, the UK regulator, the Financial Conduct Authority (FCA) has warned against cryptocurrencies.

The FCA has cautioned the public over digital currencies such as Bitcoin. It has warned that consumers should be prepared to lose all their money if they invest in them.

This stark warning may put some investors off cryptocurrencies and hence the value of Argo Blockchain shares could fall.

#5 – Expect volatility from Argo Blockchain shares

In the grand scheme of things, cryptocurrencies are relatively new. This means that a young company like Argo Blockchain is dealing with a new technology. I reckon some investors don’t fully understand how these digital currencies work.

I think if there’s volatility in cryptocurrencies, then Argo Blockchain shares will most likely experience some turbulence.

Would I buy?

The stock has taken a tumble and I think now may be a good opportunity to buy the shares. Such an investment doesn’t come without risks, which I’ve highlighted above. But I’d buy Argo Blockchain shares as a speculative purchase in a diversified portfolio. It’s an alternative way to play the cryptocurrency theme without investing directly in the digital currencies.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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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