Issuing a word of caution for a publicly traded enterprise that has witnessed a remarkable 335% surge in market value since the year’s commencement might appear unusual. Nevertheless, such a cautionary stance holds true for the blockchain-mining specialist, Riot Platforms (NASDAQ:RIOT). Despite RIOT stock seemingly enjoying favor from Wall Street, an air of cautious skepticism should prevail among investors due to ongoing uncertainties within the cryptocurrency realm.
It’s important to clarify that this isn’t an outright pessimistic proclamation. The cryptocurrency market holds an unparalleled level of devoted loyalty, but therein also lies the challenge – the realm of possibilities encompasses not just bullish prospects but also the realm of bearish trends. When cryptocurrencies experience a downfall, the impact reverberates across individual coins, tokens, and blockchain-linked businesses at a rapid pace.
With substantial challenges emerging, such as the Federal Reserve’s return to raising interest rates and the cascading consequences, including substantial job cuts, the vulnerability of cryptocurrencies to adverse conditions cannot be overlooked. Decentralized assets epitomize high-risk ventures, making them susceptible to adverse effects on RIOT stock and other entities involved in blockchain mining.
Moreover, mounting evidence underscores these concerns. While RIOT stock has enjoyed meteoric growth this year, it experienced a significant dip of nearly 21% in the past month. Furthermore, signs from the derivatives market suggest that shrewd investors might be reconsidering their positions or opting for a temporary retreat from Riot Platforms.
Analyzing RIOT Stock’s Complex Options Landscape
Barchart’s unusual options activity screening for RIOT stock reveals three transactions, all of which are notable for being calls – a signal that traditionally aligns with a bullish sentiment. The Barchart Technical Opinion indicator, rating RIOT stock as a 72% buy, adds to this optimistic picture. It’s important to note that this indicator has accurately reflected the recent downturn in share prices, signaling a compromised short-term trajectory. However, a positive outlook persists for the longer term.
Wall Street analysts also contribute to this bullish sentiment, collectively rating RIOT stock as a strong buy. This rating comprises six strong buy recommendations, one moderate buy, and one hold. Interestingly, the median price target stands at $16.89, suggesting a potential upside of over 15% from the close of Monday’s trading. Moreover, an ambitious high-side target of $24 implies a substantial growth potential of nearly 64%.
Nevertheless, it’s crucial to remember that we are discussing ventures related to cryptocurrencies. Consequently, the low-end target of $6 serves as a reminder of the potential risks involved – a drop to this level could result in a considerable 59% loss in equity value for investors.
Delving into Fintel’s options flow data for Riot Platforms, a clearer picture emerges, filtering out market noise to identify core transactions that might reflect the movement of smart money. Importantly, Monday’s options activity is dominated by calls. However, the noteworthy detail is that only one out of the five major transactions represents a bought call, the classic bullish move. The remaining transactions involve sold calls, indicating bearish sentiment. These sold calls encompass multi-sweep orders, executed across various trades and exchanges simultaneously.
Scrutinizing the core statistics, traders selling RIOT calls account for a volume of 7,297 contracts against open interest of 40,927. Conversely, bought RIOT calls translate to a volume of 716 contracts against open interest of 3,734.
Heightened Exposure to Cryptocurrencies
The cautionary stance isn’t solely attributed to smart money’s perceptions of RIOT stock. An additional concern stems from the blockchain miner’s excessive dependence on Bitcoin’s underlying price for its top-line growth.
Admittedly, there exists a correlation coefficient of 61.5% between Riot’s quarterly revenue (spanning from Q1 2020 to Q2 2023) and the Bitcoin price. This coefficient is considerably lower than the 93.3% correlation between Coinbase (NASDAQ:COIN) revenue and Bitcoin. However, the overarching point remains: the success of crypto and blockchain entities is inherently tied to the cooperative behavior of the underlying market.
Final Thought
As a Bitcoin holder, I am personally vested in the market’s upward trajectory. Simultaneously, my experience in this field reminds me that cryptocurrencies can test one’s patience, and a dose of realism is warranted. The sector’s potential to adversely impact the unsuspecting is undeniable.
With blockchain miners divesting portions of their Bitcoin holdings and skepticism surrounding the advent of a spot Bitcoin ETF, a conservative approach seems advisable at present. At the very least, investors should tread with utmost caution when considering RIOT stock and its counterparts.
Featured Image: Freepik @ rachenzero
Author Faith Yakubu 
