Financial headlines have been dominated by cryptocurrencies in recent months, whether it has been Bitcoin hitting all-time highs or the rise of Dogecoin.
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Cryptocurrencies are very volatile and many people want to find alternative ways to invest without having as much exposure. Riot Blockchain (NASDAQ: RIOT) is a Bitcoin mining company that has been getting a lot of attention from investors recently. Is Riot Blockchain a good investment?
The bull case for Riot Blockchain
Riot Blockchain has been well-positioned to take advantage of the significant rise in Bitcoin’s price over the past year, having mined 697 Bitcoins in 2021 by the end of April. This is significantly more than many of its competitors, with Marathon Digital mining 386 Bitcoins for the year up to May 6.
Riot Blockchain owns 1,771 Bitcoins, which are worth a total of $88.55 million at $50,000 per Bitcoin. The company forecasts that it will increase production by about 50% by the end of 2022 due to investments in additional ASIC miners. Its mining operations as a whole are very efficient. Its hash rate is very good, which is the determining factor in how much mining companies will get paid for their efforts.
The bear case for Riot Blockchain
A lot of talk in recent months in the U.S. has been about the high level of fossil fuel consumption needed to mine Bitcoin. Treasury Secretary Janet Yellen spoke in February about the “staggering” amount of power that is needed. Tesla CEO Elon Musk also backtracked on May 13 regarding the EV company’s acceptance of Bitcoin as a payment method due to energy usage concerns.
It is getting harder to mine Bitcoin as every few years the reward for mining a Bitcoin is halved. Therefore, to maintain mining rates, more computing power is needed. Competition is also formidable, with Chinese miners accounting for approximately 70% of Bitcoin production.
The success of Riot Blockchain is also very closely linked to the price of Bitcoin, which will be a concern for investors in this volatile marketplace.
Finally, the likes of Ethereum are now challenging Bitcoin as the king of the crypto space. Only those who are confident of continuing significant rises in the price of Bitcoin will be looking at investing in Riot Blockchain for the long term.
So, should I watch Riot Blockchain stock?
The Riot Blockchain share price exploded from less than $5 last November to almost $80 in February. This was on the back of the massive increase in the price of Bitcoin. Even the current price of $22 looks to be inflated.
The company’s fortunes are very closely linked to the success of Bitcoin and its current assets do not seem to justify its $1.9 billion market cap. You might need to be very bullish on the future of Bitcoin to invest at current prices and it would likely be a bumpy ride.
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