Despite Riot Blockchain's Risks, HC Wainwright Emerges As A Bull

After a huge year in 2017, the cryptocurrency market has cooled off so far in 2018. One analyst sees the sell-off in Riot Blockchain Inc RIOT as a buying opportunity.

The Analyst

H.C. Wainwright analyst Kevin Dede initiated coverage of Riot with a Buy rating and $9 price target.

The Thesis

The potential long-term reward outweighs the many risks associated with Riot’s business at the moment, Dede said in a Friday note.

Potential new regulation, SEC investigations, class action lawsuits, negative news reports, volatile swings in bitcoin prices, "seemingly nefarious” relationships and unclear financial metrics all make Riot stock a major risk for investors, the analyst said. (See Dede's track record here.)

Riot will address many of the investor concerns when it files audited financial reports, he said.

The cryptocurrency market lacks a company that combines currency mining and currency exchange, Dede said. No companies are creating ties between digital currency exchanges and mainstream consumer-focused brokerages, such as TD Ameritrade Holding Corp. AMTD and E*TRADE Financial Corp ETFC, he said.

“Riot's plan is to attack both, and this combination serves as the company's most attractive attribute, in our view,” the analyst said.

Riot expects to have 8,000 bitcoin mining machines running by the end of May that Dede said are serving to produce bitcoin inventory for potential trading liquidity and provide high-margin capital of between $40,000 and $50,000 per day for Riot. Dede estimates Riot’s bitcoin mining operation is operating at gross margins between 70-80 percent, given the attractive energy pricing in Oklahoma City.