In a trading range of $ 1.93 to $ 79.50, Riot blockchain (NASDAQ:RIOT) has all the appropriate volatility for an active trader. The wild swings in bitcoin and other cryptocurrencies will then decide the direction of the RIOT stock. This would suggest that traders cannot predict what the upside potential is for Riot.
Despite the uncertainties of this mining company, what is the outlook for Riot Blockchain, assuming cryptocurrency prices stabilize?
Q1 results failed to boost RIOT stock
The recent drop in bitcoin has eclipsed Riot Blockchain’s first quarter results. the published company mining revenues rose more than eight times to 881.1% to $ 23.2 million. Margins increased sharply, from 40.4% last year to 67.5%. This led to a modest earnings per share of 9 cents or net income of $ 7.5 million. CEO Jason Les attributed these improved numbers as “a direct result of Riot’s absolute focus on mining Bitcoin and growing its mining operations.”
Shareholders should expect Riot’s positive correlation with the value of bitcoin. In the first quarter, the company increased total BTC mined by 62% sequentially from quarter to quarter. It mined 491 BTC, compared to 303 BTC in Q4 / 2020.
Riot has a solid track record. He ended the quarter with record current assets. In addition, he has no debt. It ended the quarter with $ 275.6 million as of April 30. At 1771 BTC on the balance sheet, traders could hold RIOT shares instead of BTC. Instead of paying a percentage of commissions on exchanges that support BTC, investors can trade RIOT stocks instead. Likewise, Marathon Digital (NASDAQ:MARA) is similar in size to Riot in terms of market capitalization. The difference between the two stocks is that short interest is almost 18% with Riot, compared to 13% with Marathon.
Opportunity and risks
In addition to relying on BTC prices, Riot offers gross margin expansion as its mining efficiency increases. For example, the new generation miners deployed this year are expected to increase their efficiency. This would reduce Selling, General and (“SG&A”) costs as revenues increase.
According to to simply wall.st, Riot is in good financial health. Conversely, the stock does not offer much potential for future growth or value at current levels. On the chart, the stock made several attempts to maintain the $ 50 and $ 60 level, but failed. It can find support at the 200 day moving average. Yet the unpredictability of BTC’s price suggests this analyst is guessing at what the stock is worth. According to TipRanks, one analyst has a price target of $ 30. Realistically, BTC has a lot of macro unknowns that will affect prices.
Government regulations against cryptocurrency are an ongoing risk. The regulations will slow its mass adoption. Fortunately, few countries except china showed a desire to crack down on bitcoin mining and trading activities. China’s SOS Limited (NYSE:SOS) is the most vulnerable to repression.
Freezing rate growth is a potential risk for the future. The planned riot total has a throughput capacity of 7.7 EH per second by the fourth quarter of 2022. This assumes a full deployment of approximately 81,146 Antminers acquired from Bitmain.
Bitcoin risk tax
On May 20, the US Treasury wanted cryptocurrency transfers over $ 10,000 to be reported to the Internal Revenue Service. BTC fell from around $ 3,000 to below $ 40,000 on that day. This kind of tax burden will severely slow the continued rise in BTC from here.
Despite all the uncertainties ahead for BTC and Riot Blockchain, the stock is worth speculating. Momentum can quickly reverse course at any time. Bitcoin had a long history of plunging into the double-digit percentage over the past decade. This decline followed a remarkable rebound.
BTC could rebound again, taking RIOT shares with it. When this happens is unknown. Investors should therefore only hold a small position in RIOT or MARA, pending an upward reversal. If that happens, the strong rally could bring RIOT stock closer to annual highs.
The opposite is true.
If Bitcoin’s price momentum has stopped for good, then Riot Blockchain will fade to the downside. It would risk dropping single digits to levels not seen since last year.
As of the publication date, Chris Lau does not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.