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Bitcoin Jitters Suggest Caution Toward Riot Blockchain

Like everyone interested in making money doing nothing, I’ve been closely monitoring the Bitcoin (CCC:BTC-USD) price chart. With so much interest in the space, I’ve been pondering if I should put more of my investment funds in there. For some, BTC is too pricey, and the better bet is to engage cryptocurrency-mining firms like Riot Blockchain (NASDAQ:RIOT). On the surface, it’s not a bad idea to consider RIOT stock.

image of bitcoin to represent cryptocurrency stocks
Source: Shutterstock

Yes, Bitcoin has made international headlines thanks to its meteoric rally, which has seen the original crypto token briefly top $61,000. Over the trailing year, BTC gained almost 700% while on a year-to-date basis, it’s up around 75%. But as impressive as these stats are, they’re nothing compared to what RIOT stock has delivered its lucky early stakeholders.

Over the trailing 365 days, Riot Blockchain shares are looking at 5,358% returns. Since the beginning of this year, RIOT stock is up 157%, even with some wild volatility in recent weeks. A riot indeed.

If we took aside the red ink that both the underlying asset and the crypto miner has printed, the broader fundamentals appear supportive for the two. First, Bitcoin has arguably accrued mass-scale adoption at this point. In other words, it’s no longer an unknown commodity, ready to evaporate at a moment’s notice.

Second, BTC gained traction among institutional investors, making it one of the most viable digital stores of value. In my opinion, nothing else comes close, despite some flaws in its blockchain architecture. And with the approval of the major institutions naturally comes credibility, something the sector has long been vying for.

Third, the above dynamic bodes well for RIOT stock. No longer minting fantasy money, the underlying company is tied to a meaningful, relevant endeavor. Considering that cryptocurrencies cater largely to millennials and generation Z, it seems the entire industry – both the coins and the mining operations – have a long upside pathway.

Why You Want to Be Careful with RIOT Stock

Generally speaking, I’m long-term bullish on cryptocurrencies and the wider ecosystem. In December of last year, I wrote about crypto assets that could explode higher in 2021. As you know, that has proven to be the case. On that basis alone, many investors have confidence that RIOT stock will continue charging higher.

It very well could. I must admit that over the past few weeks, I’ve been very confused about the trajectory of Bitcoin. On some days, I could swear that BTC was printing a bearish chart pattern, a few head and shoulders, and a ton of negative-looking wedges. Each time, BTC flipped the bird to the bears and off to the races it went.

This time does seem a bit different, though. Today, Bitcoin is trading around the $51,310 level. By the time you’re finished reading this article, BTC may have skyrocketed well past that. No one knows.

Still, whatever happens, this is a good time to remind everyone that yes, even transformative investments like Bitcoin – and perhaps by logical deduction RIOT stock – can experience sharp corrections. On this topic, I can’t help but notice similarities between RIOT shares over the last nine quarters and the Nasdaq Composite index, from April 9, 1995 to March 25, 2001.

RIOT stock vs. Nasdaq index
Source: Chart by Josh Enomoto

As you can see from the chart above, the two trends, though not identical are very similar. First, both RIOT stock and the Nasdaq index in their aforementioned respective time periods saw a sizable move up, followed by a corrective phase. Second, RIOT and the Nasdaq entered a phase of rising consolidation. Finally, the two enjoyed a blow-off top move.

Thanks to hindsight, we know what happened to the Nasdaq – it tried to regain its footing before ultimately plunging. Where RIOT will go now is the question.

If you believe the crowd, this is just a minor blip on the way to its real zenith. But the similarity of RIOT to the Nasdaq bubble is eerie, to say the least.

Trade with Speculation Funds Only

According to Joseph Kennedy, “If shoe shine boys are giving stock tips, then it’s time to get out of the market.” It then begs the question: if Kennedy were alive today, what would his modern-day example be?

If I had to guess, it would be random YouTubers that are talking about Bitcoin going to $160,000 or higher. The most commonly offered reason is inflation – it’s not really BTC that’s getting stronger but the dollar that’s becoming weaker.

Yeah, everybody’s talking about inflation as well. But isn’t deflation the biggest risk to our economic recovery considering that money velocity is near all-time recorded lows? If this turns out to be the case, Bitcoin and other assets may suffer significantly.

This isn’t to dissuade you from RIOT stock, not at all. What I’m trying to say is that if you’re going to buy shares, do so with your eyes wide open.

On the date of publication, Josh Enomoto held a long position in BTC.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media,

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