Investors have many ways to trade the spectacular rise of cryptocurrency. They could buy Bitcoin (CCC:BTC-USD), other cryptocurrencies, or they could buy crypto-based stocks. The incredible rise and fall of Riot Blockchain (NASDAQ:RIOT) stock in the last month mirrored that of Bitcoin.
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When technology stocks tumbled, led by rising bond yields, RIOT stock lost momentum, too. Is the stock a good way to trade the crypto boom and bust cycle?
RIOT Stock Relies on Hash Rate
On Feb. 11, Riot announced a milestone of 1.06 exahash per second (“EH/S”) in hash rate capacity. It achieved this by deploying a newly received 2,002 S19 Pro Antminers.
Riot has two next-generation Antminers on the way. Antminer S19 has a hash rate of 95 TH/s, while S19 Pro has a hash rate of 105 TH/s. In its announcement, Riot achieved improved power efficiency. The power efficiency is 29.5+/-%5 J/TH.
Riot is equipping the S19 series with a custom-build chip from Bitmain. It said that “this was achieved by enhancing the circuit architecture, greatly improving power efficiency.”
The hash rate and power draw are important figures for crypto miners. Profits are the difference between the value of the coins mined less the cost of power. So, by having technology that allows miners to efficiently mine in a SHA256 algorithm, Riot gives its customers an edge.
Catalysts
The steep sell-off in the Nasdaq composite ended last week, and RIOT stock immediately started to rebound. Investors betting on an increase in technology stock buying may buy Rio Blockchain shares. Marathon Digital (NASDAQ:MARA) is more volatile, offering more upside if the market is in a buying mood.
Bitcoin’s rise to a $1 trillion market capitalization defied the doubters. Their claims that the digital currency has no intrinsic or economic value are undermined whenever Bitcoin’s price rises. Furthermore, the secure financial network gives the currency a moat that banks cannot match. A renewed view on Bitcoin’s value as a store of value will lift Riot Blockchain’s company worth.
Indirectly, the bubble popping for electric vehicle stocks will benefit Riot shares. Speculators who bet on EV company values increasing will sell their position. They will look at other fast-moving sectors, including cryptocurrency.
Since Riot is traded on the exchange, it offers investors the convenience of crypto investing. Unlike buying the currency directly, traders are not subjected to additional fees. For example, Coinbase offers a USD wallet and hosted cryptocurrency wallet service at no cost. But it charges network transaction fees. The amount includes miner’s fees, which are charged for transactions on cryptocurrency networks.
Fair Value
On Wall Street, only one analyst has a price target of $28 on Riot Blockchain (per Tipranks). Conversely, the upside surprise from Riot’s quarterly earnings reports may give the shares the support it deserves.
For the last six quarters, the company posted losses. But it still beat consensus estimates in five of those quarters.
Cautious investors will notice that Riot Blockchain traded at below $3.50 or lower most of the time in 2020. The explosive rally that began November 2020 happened independently from Riot’s quarterly results. The value of Bitcoin is the primary driver in the stock performance.
Speculators cannot predict where Bitcoin will trade next. And without consistent revenue posted historically, investors may only guess what Riot Blockchain is worth.
Your Takeaway
Investors who are familiar with Bitcoin’s wild swings are best suited for trading Riot Blockchain shares. Digital currency has a history of soaring to new highs within hours. Then, it sells off faster than the rise.
This stock will behave in the same way without reason. Expect random volatility in RIOT stock. Decide if the swings create a buy and sell trade or if the sharp drop is an opportunity to buy shares cheaply.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.