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RIOT Stock Flirts With Disaster as Red Flags Wave

Josh Enomoto

The blockchain is one of the most powerful innovations of the last several decades. Riot Blockchain (NASDAQ:RIOT), however, is nearly an unmitigated disaster. I say nearly because it does have a small amount of redeeming value. But for most investors, RIOT stock is way more trouble than it’s worth.

Let’s first consider the obvious. Right before the weekend, RIOT stock closed down more than 24%. If you thought this was just an anomaly that contrarians can exploit, you’re dead wrong. Year-to-date, Riot shares have dropped an unfathomably horrific 85%. Undeniably, RIOT stock has been one of the worst equities this year.

To make matters worse, Riot Blockchain stock has badly underperformed bitcoin, the asset to which the company is linked. While bitcoin, like virtually all cryptocurrencies, is volatile, it has dropped “just” 54% YTD.

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Just from that data, you can see  how incredibly flawed RIOT stock is. For instance, I’ve argued before that there is no true proxy for cryptocurrencies. So-called blockchain stocks and bitcoin stocks are typically just companies that utilize the blockchain as part of their businesses.

However, some blockchain companies do offer relative stability. In the past, I’ve suggested names like Paypal (NASDAQ:PYPL), Square (NYSE:SQ), and Nvidia (NASDAQ:NVDA) as potentially lucrative bitcoin stocks. Barring a cataclysmic event, they’re not going to bomb like Riot Blockchain stock has.

Furthermore, Riot is seemingly only inviting more trouble. If its terrible performance throughout this year wasn’t enough, the company’s CEO and chairman, John O’Rourke, resigned on September 8 under a cloud of controversy. The Securities and Exchange Commission charged O’Rourke with fraud involving other companies.

The SEC charges don’t involve RIOT stock specifically. However, the accusation’s uncomfortable details cast a cloud over the company.


RIOT Stock Is Blockchain in Name Only

In the political sector, two types of Republicans apparently exist: real Republicans, and Republicans in name only, or RINOs. For instance, many conservatives believe that President Trump is a real Republican, while House Speaker Paul Ryan is a RINO. Although there are no precise definitions for these terms, we get the message: conservatives think that some Republicans are the real deal, while others are posers.

We can apply this concept to investments that are related to the crypto world. We have legitimate blockchain stocks, and then we have companies that are blockchain in name only, or BINO. And Riot Blockchain stock is a BINO among BINOs.

Indeed, well before the ugly fiasco involving O’Rourke, the SEC warned companies about superficially adding blockchain to their brands and names. Prime examples of this phenomenon include Riot, which once was veterinary-biotech firm Bioptix, and Long Blockchain (OTCMKTS:LBCC).

And make no mistake: RIOT stock has almost nothing to do with the blockchain. According to Riot’s website, the company has an extensive bitcoin-mining operation. So what! I don’t see how mining cryptocurrencies advances the blockchain concept.

Our own Dana Blankenhorn is also bearish on RIOT stock, probably even more than I am. Blankenhorn states that the company invested in several questionable ventures, many of which involve cryptocurrency projects.

Listen, even if Riot announced an initial coin offering, I wouldn’t recommend its equity shares. If they did declare an ICO, I’d run for the hills. The last thing we need is another ICO that leads to an overhyped, junk digital token.

Which brings me back to the SEC charges against O’Rourke. According to a CNBC report, O’Rourke, along with nine other individuals, has been charged with fraudulent activities, including pump-and-dump schemes involving micro-capitalization stocks.

The crypto sector is rife with scams and illegal practices. Again, while the SEC investigation doesn’t directly cover Riot Blockchain stock, the optics are putrid.

The Only Redeeming Quality of RIOT Stock

Nearly all investors should avoid RIOT stock. Simply put, it is not worth your time, let alone your money. But I also like to present fair analyses, so I’ll admit that Riot does have one positive attribute.

If you look at the charts for Riot Blockchain stock and bitcoin, you’ll see that they are strongly correlated. Both experienced a mind-blowing pop in the final quarter of 2017, and both suffered alarming volatility throughout 2018.

If this correlation holds up – and that is a huge if – you could buy bitcoin at a steep discount through RIOT stock.

But unlike bitcoin, RIOT is not an independent asset. Its share price is largely dependent on its business prospects and leadership team. Moreover, the charges against its former CEO do not inspire confidence in the integrity of its management.

Frankly, I just don’t see a positive side to RIOT stock. It’s not bitcoin, so it lacks a cryptocurrency’s extreme fungibility. And you can’t trust its management team. Riot Blockchain stock is the perfect example of getting the worst of both worlds.

As of this writing, Josh Enomoto is long bitcoin.

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