Market Overview

Here's Why Riot Blockchain Is Under Selling Pressure

Here's Why Riot Blockchain Is Under Selling Pressure

Shares of Riot Blockchain Inc (NASDAQ: RIOT) soared to a new 52-week high of $33.27 Tuesday, but reversed course Wednesday and were down more than 15 percent. The stock has been named as one of the few ways equity investors can gain exposure to bitcoin-mania as the company targets investments in the blockchain ecosystem.

The Experts

Ari Wald, head of technical analysis at Oppenheimer, and Brian Kelley, found and managing member, Brian Kelly Capital and CNBC contributor.

The Strategy

Investors are encouraged to stay away from companies that operate within the cryptocurrency space unless they fully understand the highly volatile and speculative nature of the industry, according to Wald.

Wald: Better Picks Elsewhere

Shares of Riot Blockchain are up more than 500 percent over the past three months, but some investors are likely cashing in on their profits Wednesday. Or perhaps some investors are re-examining their thesis altogether and asking if Riot Blockchain is the best way to gain exposure to bitcoin.

Another stock that has soared due to bitcoin-mania is Inc (NASDAQ: OSTK) as the company not too long ago announced it will accept bitcoin as a form of payment. But between Riot Blockchain and Overstock, Wald thinks the choice is obvious: structurally speaking, the case can be made to pick Overstock, Wald said during a CNBC "Trading Nation" segment.

Overstock's stock has gained 100 percent over the past three months, yet at the same time the stock is still below it's all-time high of $77.

"Ultimately, it could make its way back to that $77 level if you're a long-term investor," Wald said. From a near-term basis, just given some extended near-term conditions, you might have to go through a little bit of volatility until you get to those higher price levels."

On the other hand, Riot Blockchain could see selling pressure over the near-term and begin a longer-term trend of establishing "lower highs."

Kelly: Riot Was Once A Biotech Company

Riot Blockchain as recently as a few months ago was a biotech called Bioptix with zero experience in blockchain technologies, Kelly explained Tuesday during CNBC's "Fast Money." The company was engaged in selling medical and biotechnology equipment and then paid $12 million to acquire a cryptocurrency mining company that only holds $2 to $4.2 million worth of assets. Instead, the company could have bought the equipment for a much lower price and "didn't need to buy a company."

"That is a huge, huge red flag," he said. "Why are they doing that? Their corporate structure is very strange, very convoluted."

Moreover, the company has yet to "put dollar one in the bank" from its cryptocurrency business, he continued.

The cryptocurrency mining business is "very expensive" and the company paid $12 million to buy a mining company, but it's stock value rose $200 million so investors naturally "need to be careful."

Price Action

Shares of Riot were trading lower by 10 percent Wednesday morning, while shares of Overstock were higher by more than 3 percent.

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May 2018Initiates Coverage OnBuy

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