Why Riot Platforms is Soaring Today

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What happened

Amidst a sea of ​​green in most cryptocurrencies and crypto-adjacent stocks today, it’s hard to find an asset that isn’t making meaningful gains. However, among the biggest gainers in today’s session is crypto-miner Riot Platforms (RIOT 14.14%). As of 2:45 p.m. ET, RIOT stock soared 15.4%, among the tech-heavy Nasdaq leaders.

This decision appears to be driven by a number of key factors. The price of bitcoin (BTC 2.01%) continued to climb, appreciating by 2.3% in the past 24 hours. For Bitcoin miners such as Riot, this is a key fundamental metric, which is usually the directional driver of price movements on any given day.

Additionally, a relatively strong operational update provided by Riot last week gave investors reason to take a risky stance with this company. Riot saw 55% year-over-year growth in total bitcoin production, as well as nominal bitcoin sales to fund operations.

Finally, the company’s rebranding (from Riot Blockchain to Riot Platforms) intrigued some investors. Indeed, in the rebranding press release, Riot noted its strategic shift by focusing on various vertical opportunities to support long-term growth, in areas such as electrical equipment manufacturing and power plant installations. data centers.

So what

Riot’s fundamentals, which looked strong for most of 2021 as Bitcoin prices remained high, began to deteriorate. The company is seeing its quarterly losses increase, and while Riot has made earnings per share of $0.11 for the past 12 months, it’s likely we’ll see a negative number there after the company’s next earnings report. company.

As a result, it is a stock that is attracting outsized interest from short sellers, and for good reason. While some retail investors may be looking for a short beat pressure to play this rally, it remains to be seen how sustainable today’s move in RIOT stocks will be in a week or two.

Now what

As a bitcoin miner, Riot’s ability to produce consistent profitability really depends on the ability of bitcoin’s price to stabilize, and preferably rise, at previous levels. At around $17,000 apiece, the long-term profitability of Bitcoin mining remains in serious question. It is therefore a very risky bet for those with less than stellar prospects for the world’s largest cryptocurrency.

That said, in many ways, Riot represents a very high beta vehicle for investors to take a bullish stance on crypto. Given the outsized impact of rising Bitcoin prices on Riot’s bottom line, should we see a rally materialize, this is a move that could actually outperform the crypto itself.

Given Bitcoin’s inherent volatility (which I think is enough for most investors), Riot is a company that doesn’t appeal to me here. That said, it’s easy to see why so many investors are drawn to this beat-up name right now.

Chris MacDonald has no position in the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

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