If you checked your crypto account balance late yesterday, you may have had a pleasant surprise. Mine showed me a balance of $28.7 billion due to a glitch somewhere in the system. I mention this because today we discuss the viability of investing in Riot Blockchain (NASDAQ:RIOT) stock. And it is in the crypto business, so the legitimacy of the sector is central to its concept.
Of late, RIOT stock has tracked the price action in crypto relatively closely. So, let’s first establish the viability of the sector. Crypto is here to stay, so it is best to start learning about it. Investing in companies whose businesses revolve around it makes sense.
Riot is one of those companies. Therefore, by definition it makes for a viable investment choice. Next comes picking the right entry levels. With stocks that move this fast, it is crucial to think twice before jumping in. The midterm success in trading it depends heavily on timing.
There Is Support Below
RIOT has fallen almost 50% in just over a month. The good news is that this is a zone within which it found support four times before. When stocks revert to levels from which they had strong rallies they tend to find support. However, if they eventually lose them, the support turns into a bearish catalyst. In this case, RIOT stock needs to hold here, or else it could fall another 25% further.
As for evaluating the company’s fundamentals, it’s trickier than usual. The business revolves around Bitcoin (CCC:BTC-USD) mining; therefore, there are a lot of uncommon concepts. We are learning to be smarter about asking the right questions, so our learning curve is steep.
Total revenues are increasing, but they are still tiny. The good news is that for the trailing 12 months, the company shows a positive net income. The price-to-sales ratio is under 20, which seems reasonable. Regardless, those statistics alone are not enough to justify investing in RIOT stock blindly.
Investors must accept unusual risks that come with the crypto wild west. I don’t mean that an an insult to crypto fans — it’s just a statement of facts. The shenanigans that went on last night are just one example of this. I am an investor in crypto and I’m enjoying 10% fixed income from staking. Therefore I am on board with having crypto as a long-term investment thesis.
RIOT Stock Fundamental Are Not Yet an Asset
For this stock, I would stick to trading the charts more so than the fundamentals. Traders can break it down into two different categories. The first being to hold the shares for a long term. For that purpose, now is a fine time to start averaging in. The second is to trade the technical levels shorter term. That matter may require a bit of homework but it will be worth it. I wrote about buying the dip into support in March. Subsequently the stock rallied 25% in 2.5 weeks.
The RIOT opportunity for the next three months looks good. With support below, the bulls can bounce off this floor. The correction has been brutal but Bitcoin is also off its lows thereby providing lift to RIOT. There are also extrinsic risks coming from the Fed event today.
If they reverse policy to tightening too quickly they could crimp the economy. The headline alone could cause a correction from investors throwing a fit on Wall Street. They don’t ring bells at perfect times to trade a stock. This is why it is important to define the investing time frame before committing to RIOT stock.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
