Argo Blockchain (LSE: ARB) shares have been falling recently. But the stock has grabbed the attention of many investors, myself included. As a long-term investor, I’d buy the stock — but there are risks.
The story so far
In a nutshell, Argo Blockchain is a cryptocurrency miner. In fact, it’s one of the first of its kind to list on the London Stock Exchange. I reckon this is one of the reasons why the stock has risen so quickly. It’s an indirect way to access cryptocurrencies, particularly Bitcoin, the most popular one.
I should stress that Argo Blockchain shares are linked to the price of Bitcoin. The higher the price of the cryptocurrency, the more the company mines the digital asset, thereby boosting the share price. It also works the other way. So if Bitcoin falls, then the stock would likely fall too.
The cryptocurrency boom
Cryptocurrencies have made a comeback, especially during the coronavirus crisis. Buy why? Well, I think a seismic change is happening in sentiment towards these digital assets. I reckon many investors are starting to view cryptocurrencies as a portfolio diversifier and alternative asset.
Large institutions are latching onto the cryptocurrency trend. At the beginning of this month, Elon Musk’s Tesla purchased $1.5bn of Bitcoin. Other companies have started to buy cryptocurrencies as well. To me, this highlights a wider acceptance of the digital asset. In time, I expect more institutions to be buying cryptocurrencies as a diversifier.
The UK financial regulator, the Financial Conduct Authority (FCA) has warned against cryptocurrencies. It has stressed that consumers should be prepared to lose all their money if they invest in digital currencies like Bitcoin.
Cryptocurrencies are extremely volatile, and I’d expect Argo Blockchain shares to exhibit this trait too. This means that I’m only prepared to purchase an amount I can afford to lose.
What’s Argo Blockchain doing now?
A lot has been happening at the company. January was a great month for Argo Blockchain in terms of mining and profitability.
At the beginning of February, the firm announced that it had made a investment in a digital asset company. I like the fact that it’s diversifying its future revenue streams by buying stakes in early stake cryptocurrency companies.
It has also entered into an agreement to acquire land in Texas, US, to build a mining facility in the next 12 months. Argo Blockchain is using its shares to pay for the land. But it’s taking a $100m credit facility to fund the mining facility project. To me, this is a bold move and one that highlights the company is bullish on the future of cryptocurrencies.
If that wasn’t enough, Argo Blockchain announced a few days ago an agreement with ePIC Blockchain Technologies to supply it with state-of-the-art mining machinery.
The company believes that to be a big cryptocurrency player, its infrastructure will need to be scaled up to handle large mining. This means higher costs, which could impact profitability and thereby the share price.
As a long-term investor, I recognise there needs to be a period of capital expenditure and it won’t be smooth sailing. But I think the company is taking the right steps. Hence I’d buy Argo Blockchain shares in my diversified portfolio.
Nadia Yaqub has no position in any of the shares and cryptocurrencies 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.