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Here's Why Riot Blockchain Is Plunging Even Though Bitcoin Is Up 17% This Week

By Matthew Frankel, CFP® - Feb 16, 2018 at 4:26PM

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It’s been a strong week for cryptocurrencies, so why is this blockchain company down 36%?

Most major cryptocurrencies have had a strong week. Bitcoin is up by 17% and is hovering around the key $10,000 level as I write this. Ethereum, Ripple, and bitcoin cash are all up for the week as well, and Litecoin has gained more than 45%.

However, cryptocurrency company Riot Blockchain (RIOT -2.66%) is having a rough day on Friday. As of 3:30 p.m. EST, the stock has lost nearly 36% of its value since a troubling investigative report into the company was revealed.

Design of hexagons with one reading "blockchain" in the middle.

Image source: Getty Images.

Today's cryptocurrency prices

First, here's a look at the 10 largest cryptocurrencies by market capitalization, and how much each has changed over the past day and week:

Cryptocurrency Name (Code)

Price in U.S. Dollars

Day's Change

1-Week Change

Bitcoin (BTC)

$9,971.00

(1.4%)

17.1%

Ethereum (ETH)

$930.02

0.4%

8.5%

Ripple (XRP)

$1.10

(1.4%)

23.6%

Bitcoin Cash (BCH)

$1,460.50

6.3%

14.5%

Litecoin (LTC)

$227.34

4.5%

45.2%

Cardano (ADA)

$0.39

(0.1%)

5.1%

Stellar (XEM)

$0.44

(0.5%)

14.4%

NEO (NEO)

$126.12

3.4%

10.1%

EOS (EOS)

$9.67

(2.1%)

7.1%

IOTA (MIOTA)

$2.07

(1%)

7.5%

Data source: Investing.com. Prices and daily changes as of Friday, Feb. 16, 2018 at 3:15 p.m. EST; prices are rounded to the nearest cent where appropriate.

Here's the takeaway. While Friday has been a relatively calm day for cryptocurrencies, with most up or down by just a few percentage points, all of the major cryptocurrencies are up for the past week. So why is a company whose primary business function has to do with cryptocurrencies plunging?

Why is Riot Blockchain plummeting?

On Friday, CNBC (a subsidiary of Comcast) aired a report of its own investigation into Riot Blockchain. Some of the findings were already well-known, such as the company's abrupt name change from Bioptix to Riot Blockchain in October 2017, and the shift of its focus from veterinary products to cryptocurrencies.

Riot has indeed made some cryptocurrency investments, such as the purchase of a stake in Canadian cryptocurrency exchange Coinsquare, and the acquisition of a cryptocurrency-mining company for more than $11 million (although the equipment was worth only $2 million at the time).

However, CNBC revealed a list of other red flags that investors should be aware of. These include:

  • Annual meetings that are abruptly postponed: Specifically, Riot's annual meeting was scheduled to take place at a luxurious resort in Boca Raton, Florida, but was "adjourned" with less than a day's notice -- twice. And there were no reservations on the hotel's books for either scheduled date.
  • Insider selling shortly after the name change: Riot's CEO John O'Rourke sold more than $869,000 worth of stock in the months following the name change (and subsequent stock spike).
  • A major shareholder selling his stake while the stock was on fire: Barry Honig, once Riot's largest shareholder with more than 11% of the company's stock, purchased shares at prices ranging from $2.77 to $5.32 per share. After the name change and stock surge, he sold all but a stake of less than 2%. By the time Honig's stake had fallen below 5%, the company's stock price exceeded $20.
  • Dilutive stock issuances to major investors: Honig also accumulated more than 700,000 warrants, convertible to Riot's common stock at $3.56 per share, and more than 700,000 promissory notes, convertible at $2.50. To make things even more suspicious, it is unclear what happened to them, and Honig declined to say.

Riot's response

CEO John O'Rourke issued a lengthy response to the CNBC report, attempting to highlight the company's accomplishments and address the report's allegations.

You can read the full text of the letter on Riot's website, but O'Rourke says that the shareholder meeting was canceled because a quorum could not be gathered, and that his stock sales were solely to cover tax obligations. He also defended Honig's position as a supportive shareholder of the company, and dismissed the notion that the company was simply hopping on the "cryptocurrency bandwagon" with its name change.

Not the best way to play cryptocurrencies

Whether you believe that Riot Blockchain is simply a biotech-turned-cryptocurrency company attempting to take advantage of the crypto-craze, or that the company is a legitimate operation that could become profitable, this is a highly speculative company at best.

If you believe in the long-term potential of cryptocurrencies, you'd be far better off investing in a well-established company like NVIDIA, Intel, or Square. Any of those could add to its existing profits if cryptocurrencies continue to attract investor interest, but will be just fine if the crypto-craze fizzles out.

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