Shares of Riot Blockchain (NASDAQ: RIOT) fell 12.5% in July 2021, according to data from S&P Global Market Intelligence. The Bitcoin miner’s negative move ran counter to a 16.6% increase in the price of Bitcoin (CRYPTO: BTC) itself. However, the disconnected moves make more sense when viewed from a broader perspective.
As a dedicated Bitcoin miner with 2,243 BTC tokens to its name, an active fleet of 24,000 Antminer rigs, and a hash rate capacity of 2.4 exahashes (2.4 billion billion hash calculations) per second, it stands to reason that Riot should be sensitive to Bitcoin pricing trends. As a result, this stock tends to amplify the underlying Bitcoin chart, rising faster when times are good and falling more deeply when the crypto market faces challenges.
Riot saw both of these scenarios play out in July. In the first couple of weeks, Bitcoin prices fell more than 12% due to regulatory challenges in China and unsupportive tweets from Tesla CEO Elon Musk. Riot Blockchain’s stock fell more than 30% during this period.
Then Musk indicated that Tesla might soon accept Bitcoin as payment for its electric cars again, sparking an immediate rebound in cryptocurrency prices. Riot bounced back, too. It had simply fallen too far in the early going to catch up by the end of the month. Today, Riot Blockchain’s stock is up 3% since the end of June, and Bitcoin prices have gained 22% over the same time span.
In plain English, Riot Blockchain boosted both the gains and losses of Bitcoin’s price swings in July. The boosted signal looked a little different in the end than the original input.
That’s business as usual for cryptocurrency miners with an all-in dedication to a single digital asset. When Riot buys more mining rigs and spends money on its Bitcoin-generating electricity bills, these business operations both increase the potential long-term gains from rising Bitcoin prices and enlarge the financial risks of a long-lived Bitcoin downturn.
Investors in this risky sector need to be prepared for wild swings along the way, and there is a very real risk that the long-term value of Riot Blockchain might be zero even if Bitcoin is here to stay as a trusted asset. Owning Riot Blockchain’s stock requires nerves of steel.
That being said, the upside can be just as real if everything works out as planned. Bitcoin has gained 270% over the last 52 weeks, while Riot Blockchain posted a 901% return. The miner delivered strong returns in the first half of 2021.
So I understand if you’re excited about Riot Blockchain’s massive promise. Just make sure you can afford to take a loss if Bitcoin prices head south for a long time.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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