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Argo Blockchain shares: should I buy now or are they a bubble waiting to burst?

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The price of Bitcoin is on the rise again, with the cryptocurrency having topped $50,000 last week. As a result, crypto mining company Argo Blockchain (LSE:ARB) has seen its shares go through the roof as well.

When the shares reached their peak of 284p last Tuesday, they had climbed 269% in less than a month as investors rushed to jump on the latest story stock. And the year-on-year rise is huge. A year ago the price was 6.35p.

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However, in today’s trading, Argo Blockchain shares have fallen over 20% so far. That shows the volatility of shares related to the crypto industry, and while returns can be great there’s also a significant risk of loss.

So would I buy shares in Argo Blockchain today? Or is it likely that the share price has grown into a bubble that will burst in the near future?

Why have Argo Blockchain shares boomed?

The Argo Blockchain share price is closely linked to the value of Bitcoin. Argo is a company whose expertise is in the mining of the cryptocurrency, and it mined around 2,400 BTC in 2020.

Since late summer last year, the price of Bitcoin has rallied to figures that completely eclipse what had been seen during its previous peak in December 2017.

As that price has risen, so has the value of Argo Blockchain’s assets. According to the company, it currently holds 501 BTC in its assets. On the current price of Bitcoin, that means it holds almost $24m worth of BTC.

It’s reasonable to assume that if the price of Bitcoin continues to rise, Argo Blockchain shares are likely to follow. 

What has also boosted the share price is the increasing adoption of crypto assets by major companies. Elon Musk’s Tesla purchased $1.5bn worth of Bitcoin last month and said the company would be accepting the cryptocurrency as payment for its cars in the future.

Crypto-sceptic

For all the incredible growth that both Argo Blockchain shares and Bitcoin have seen in recent months however, I’m still quite sceptical about future price movements.

As recent history has shown, the crypto markets and associated shares can be massively volatile. If I were to invest today, I would have to take the risk that tomorrow I could be subject to a massive loss.

As an investor who looks for long-term growth and income opportunities, I’m just not entirely comfortable with that. I do believe that the technology behind Argo Blockchain and crypto assets has a lot to offer the economy and society as a whole, I’d just like to see a little more in terms of stability and regulation of the industry before making a decent investment in it.

In terms of Argo Blockchain specifically, I’m not convinced how sustainable its business model is given how closely tied its share price has been to the value of Bitcoin. That kind of dependence isn’t healthy for a business, in my opinion.

Of course, I could miss out on a massive opportunity as Argo Blockchain shares could resume their upward trajectory if Bitcoin continues to head in that direction.

But I won’t be buying Argo Blockchain shares right now. Whether the share price is in ‘bubble’ territory now remains to be seen, and in true stock market fashion the truth is only likely to be revealed after a potential ‘bust’.

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conorcoyle has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK 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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