Shares of the largest public cryptocurrency-mining companies like Riot Blockchain (NASDAQ:RIOT) are outpacing the gains of Bitcoin (CCC:BTC-USD), as the crypto bull market shows no signs of slowing down. No surprises, RIOT stock is up 6,630% in a year.
However, it’s important to exercise caution with anything crypto-related. Bitcoin is still subject to wild oscillation, and as a by-product, stocks like RIOT will also have to bear the brunt of this volatility. Granted, no one expects us to have a 2017-like event. But we will continue to see the digital currency pop and drop because of inherent volatility. Last Thursday, RIOT stock fell as much as 14.4% during Thursday’s session, prompting fresh fears of a steeper selloff.
Meanwhile, RIOT comes with its own set of risks that have nothing to do with the broader crypto market. The former biotech company has gone in and out of several high-growth industries since it was founded in 2000. That isn’t to say the management is disingenuous regarding the latest pivot. However, it’s something to keep in mind when investing in RIOT stock.
To sum it up, it would be best to maintain RIOT in your portfolio for day-trading purposes. Initiate a small position and make sure to take profits at regular intervals and invest them in relatively safer companies. There is still a long way to go before RIOT can establish its worth as a long-term investment.
RIOT Stock: What’s Next?
Founded in 2000 under the name AspemBio, Riot Blockchain has entered and exited several high-growth sectors. The latest change came in 2017 when its management decided to focus its attention on mining Bitcoin. The silver lining is that the company has done well in the last few years since it made the pivot. Refinitiv data shows the cryptocurrency-mining company has surpassed analyst expectations four times out of the last six quarters. A very healthy statistic.
RIOT is purchasing 8,000 Bitmain S19 Pro Antminers (110 TH) for $17.7 million that will be received in the first four months of the year. Once fully operational, they will raise Riot’s hash rate capacity to 1.45 EH/s (1,446 PH/s). It will help the company compete with Nasdaq-listed Marathon Digital Holdings (NASDAQ:MARA), the “the big cheese” of the industry.
Sales have grown by 209.1% in the last three years and are expected to jump 1,425% next year. Although I take that with a grain of salt, they are not unbelievable considering Bitcoin’s growth.
What Are the Risks?
The major risk when investing in RIOT is that it’s inexplicably linked to the price of Bitcoin. Although institutional money is flowing into the digital coin, it remains a precarious endeavor. We will not see a repeat of what happened in the 2017 boom and 2018 crash. That’s because we finally see companies like PayPal (NASDAQ:PYPL), Square (NYSE:SQ) and Bank of New York Mellon (NYSE:BK) warming up to the digital coin and the wider crypto space. However, as we saw with the 10% fall, the risk will always be there when you invest in the space.
Bitcoin’s network hash rates are coming down, meaning that Riot will have to contend with the loss of market share moving forward. Plus, considering the industry’s allure, we will continue to see a great number of companies moving into the crypto-mining space.
Additionally, if RIOT wants to stay ahead of the pack and make sure the stock trades at healthy multiples, it will have to continue raising cash. Thus far, the company has stayed away from debt and relied exclusively on equity to drum up cash for expansion, leading to significant dilution. That trend will not let up, since there will be a constant need for new machines. For the time being, due to the explosive growth RIOT stock is experiencing, it will not cause investors any sleepless nights.
Excellent Day Trade
There are relatively few options for investing in crypto-mining stocks: Riot Blockchain, Hive Blockchain Technologies (OTCMTKS:HVBTF), Marathon Digital Holdings and Hut 8 (OTCMKTS:HUTMF). Hence, all of these companies have seen massive gains in the last 12 months as investors look to play the crypto trend.
Predictions are varying. Some argue Bitcoin will eventually hit $1 million and assume a position as the world’s reserve currency. Others argue that we are simultaneously in both an equity and crypto bull market, and the bubble will pop eventually. Data shows that although there have been corrections along the way, Bitcoin’s general trajectory is up. That’s why stocks like Riot are an excellent way to play the digital gold rush.
For all these reasons, RIOT stock deserves a small position in your portfolio. Time your exit and entries and then take profits at regular intervals.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.