It’s been a bumpy but red-hot rally in cryptocurrencies in 2021. And crypto stock Riot Blockchain (NASDAQ:RIOT) has been riding the surge in interest smartly higher. But how does RIOT stock stand up as an investment today? Let’s look at what’s happening off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
Where’d Janet go? Top cryptocurrency Bitcoin (CCC:BTC-USD) is up more than 100% near record highs since late January’s well-heeded warning by the Treasury head. Word of the government keen on clamping down on the crypto market, and its bad actors doing all sorts of bad things, sent everything related to digital assets crumbling. I’m confident there’s a good reason for the convenient silence since then? Not.
Today, the rally has also amazingly put BTC’s valuation at more than $1 trillion. In the equity market only Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) sport bigger capitalizations. And in the FOREX market, less than a handful of fiat currencies like the U.S. Dollar, Japan’s Yen, China’s Yuan and Euro maintain larger money supplies.
Things have also been good for Riot Blockchain. Actually, incredibly good. RIOT has screamed higher by nearly 275% this year. And while nowhere the size of Bitcoin in capitalization, it’s $4.30 billion valuation has set the company comfortably into the mid-cap landscape.
Ties to Bitcoin Success
So, what are crypto and RIOT investors thinking? Maybe it has something to do with this emerging market and its tethered blockchain technology witnessing explosive growth? Or how about Bitcoin and cryptos acceptance as incredibly important tools for business? You bet it does. And for good reason and in good company, too.
Square (NYSE:SQ). JPMorgan Chase (NYSE:JPM). PayPal (NASDAQ:PYPL). Tesla (NASDAQ:TSLA). Those titans of commerce are all early adopters of BTC and cryptos as well. And bottom, as well as the top and squiggly line on our price charts, RIOT stands to benefit from this trend beyond what we’ve already seen.
It’s really quite simple. RIOT is inexorably tethered to BTC’s success. As a miner of the cryptocurrency, the company periodically takes some of its mined digital coins and sells them to generate revenue. And when Bitcoin goes up, each singular sale is worth more to the outfit’s top and bottom lines. And with Bitcoin fetching around $56,000, but bullish estimates calling for as much as $318,000 this year and possibly reaching $1.0 million over the next decade, it’s not hard to fathom what one day could be for RIOT.
RIOT Stock Weekly Price Chart
Source: Charts by TradingView
Does Riot Blockchain look expensive today? Some will point at RIOT’s nosebleed price-to-sales ratio of around 500x as evidence. And what’s to say RIOT can fend off competition and continue to successfully capture BTC coins which grow increasingly difficult to mine, while requiring greater and greater resources?
There is no guarantee of sustainability for Riot Blockchain, of course. But as InvestorPlace’s Ian Cooper notes, management has continued to make the right kind of investments in its mining business to support a solid investment for RIOT investors.
Also legitimizing RIOT’s future path to even greater success, one only need to look at the weekly price chart.
Over the past month, shares rallied through their bubble high from late 2017. While obviously trailing BTC’s own tackling of that key resistance level, it’s impressive, nonetheless. But it’s what’s happened since that suggests there’s much more to come.
A Favored Strategy
Profit-taking off Riot Blockchain’s highs has resulted in a healthy, three-week long simple pullback pattern. And with the stock finding support off its former all-time-high and 50% retracement level and Thursday’s swing higher confirming a weekly candlestick low is in place, things are undeniably looking up for RIOT stock.
Similar to what I discussed last month with RIOT, a limited and defined risk bullish spread remains the favored strategy. However and unlike that detailed March bull call spread, a more malleable RIOT stock collar for investing more systematically during up and downswings for investors with an eye on the long-game in Riot Blockchain, is gaining obvious favor.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in Grayscale Bitcoin (GBTC), Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic (ETCG), but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.