Riot Blockchain Could Fall Fast If Bitcoin Takes a Breather

Riot Blockchain (NASDAQ:RIOT) stock has been one of the clear winners of the past year. In the past 12 months RIOT stock is up over 1,500%. Put another way, the proverbial $1,000 invested in the company a year ago would now be worth around $15,500. It is hard to argue with those kind of returns.

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In recent months, the Castle Rock, Colorado-based company has been expanding and upgrading its Bitcoin (CCC:BTC-USD) mining operations. Meanwhile, the Street has been paying attention to the recent success story. The 52-week range of the stock has been $1.10- $79.50, and the shares hit a record high in mid-February. However, RIOT is currently around $30, and the market capitalization stands at $2.8 billion.

Given the recent decline in RIOT stock, investors wonder whether now would be an opportune time to buy into the share price. If you are not yet a shareholder, you might want to wait for the price to stabilize.

In the coming weeks, I expect the price to fall below $30. Here’s why.

How Recent Earnings Came

Riot released its 2020 financials at the end of March. Mining revenues increased by 116% to $5.2 million in Q4 2020, compared to $2.4 million revenue in the previous quarter. The average Bitcoin price used to calculate Riot’s fourth-quarter revenues was approximately $18,900.

The group also announced $3.9 million net income in the fourth quarter, a significant improvement from the $3.4 million net loss in the prior year quarter. In addition, its hashing capacity increased by 460% from the previous year. Crypto investors pay attention to hash power, where the “Bitcoin network hash rate is the speed at which any particular type of mining machine operates.”

Better (or higher) hashrate means more payout for miners like RIOT, which wants to achieve a hash rate of 7,700 PH/s by 2023. Its rate is currently at 1,600 PH/s.

CEO Jason Les cited, “Our strategic decision to solely focus on bitcoin mining in early 2020 allowed the company to exit 2020 as a public company leader as measured by total hash rate. We are pleased to have invested into continuing our deployed hash rate growth, allowing us to capitalize on the extraordinary current opportunities in Bitcoin mining.”

On April 12, Riot Blockchain provided Q1 production and operations update. As of March 31, Riot holds over 1,565 Bitcoin on its balance sheet, all of which was produced by its mining operations. It has also mined 75% more Bitcoin tokens than it did a year ago. Following the results, the shares got a short-term boost.

The Bottom Line on RIOT stock

Market participants have widely different views on the evolving crypto space. So far in 2021, RIOT stock is up 80%. By comparison, Bitcoin has returned about 93%. In other words, the price of most mining stock follow that of the crypto.

RIOT stock’s forward price-earnings and price-sales ratios stand at 17x and 116x. Shares of Riot Blockchain are highly dependent on the price of BTC-USD. In recent weeks, Bitcoin has been extremely volatile and the Street is debating whether there could be further pullbacks in both the crypto and the miners.

Those investors who also follow technical charts would possibly notice that the downtrend in RIOT stock is likely to continue in the coming days, possibly taking the shares below $30. Potential investors could eye a decline toward the $27.50 level as a better point of entry.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. 

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