While GameStop (NYSE:GME) hogs the headlines it’s Riot (NASDAQ:RIOT) stock performance that is truly mind boggling. RIOT stock is up more than 6,000% in a year. But before we talk about that let’s discuss a bit of Bitcoin (BTC-USD). They are intertwined on Wall Street.
Bitcoin is usually a topic that most people avoid because they don’t understand it. Every time I bring it up among friends and family, I’m swimming upstream trying to explain it. The concept is simple, it’s a thing and it has tremendous value because enough people say it does. This is exactly the same argument that works for gold or fiat money, for that matter.
The only reason gold has any value is because enough people love it and want it. It being rare and hard to get adds to its draw. All these are arguments that apply literally to Bitcoin as well. Besides, it’s hard to deny something that costs 25 times more than gold. One Bitcoin is now more than $50,000 yet most people call it fake.
The industries cropping up around Bitcoin are the exciting part as well. We are all going to be dealing with cryptocurrencies and blockchain for the rest of our lives. The process may be arduous but it won’t be very long. Change is coming and it’s going to be incrementally fast. There are a few hurdles in the beginning but once they fall it’s going to be a sprint there on out.
Riot stock for now is highly correlated to the price of Bitcoin. Somehow the company tied its future to it. I am being vague about it because it’s a mystery to most people. I can’t wrap my head around the fact that Riot has only $7.8 million in total revenues yet its market cap is $3.3 billion. In addition, it posts $20 million in losses per year. Isn’t Bitcoin mining supposed to be profitable? The buyers of the stock now are giving it credit for 265 years of sales already. That is a lot of hopium for management to fulfill.
RIOT Stock Has Potential
No, this is not a negative note about RIOT stock. In fact I’ve been writing bullish setups since 2017. Back then the stock caught fire also with a surge in Bitcoin popularity stent. Clearly I am not a hater, but I am not an investor in the company, either. I prefer trading RIOT but as a proxy on a cheap way to trade in Bitcoin.
I believe in the value of Bitcoin not because I’m a super fan but because I also see it on a chart. Therefore, I believe in the potential upside in RIOT stock by proxy. As long as the bulls can stay above $40 per share they can breakout from the resistance near $52 per share. Until then, it is bound to trade the range. Any breach of either sides will carry momentum in that direction. These are important nuances for trading.
Since it’s hard for me to assess the business operation, I rely strictly on the technical aspect of it. This means that the opportunity in RIOT is in the charts, not fundamental. Investing directly in Bitcoin makes more sense long term. Trading it through RIOT shorter term is OK.
Luckily for RIOT fans, central banks are destroying the value of money. Therefore, they are propping up Bitcoin. This gives a tailwind to this stock for a long while. Significant dips are buying opportunities. The strategy short term is simple: Buy the breakout, or buy the dip for a rebound.
Long term, the price of Bitcoin is going higher. As long as management can keep its future tied to it, RIOT stock is going higher. This is one case where fundamentals definitely are not the way to evaluate the opportunity.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
