There are several ways to profit from blockchain and the crypto space other than investing in cryptocurrencies directly. However, Riot Blockchain and Silvergate Capital, which offer such alternatives, are prone to fluctuations primarily due to their heavy dependence on bitcoin’s movements. This is why Wall Street analysts do not recommend these stocks. Let’s discuss.

In addition to investing directly in cryptocurrencies, there are several other ways investors can profit from the crypto space.  For instance, the shares of crypto mining companies and real-time digital currency exchange facilitators are highly popular options for some investors who want to benefit from  developments in the crypto space.

The current global shortage of ASIC mining equipment has held the current network-wide hash rate at lower levels, which has created a favorable environment for miners that operate at scale. This, coupled with a tweet by Elon Musk on Wednesday, in which he noted that Tesla will accept bitcoin as a form of payment, has garnered much attention from investors.

However, Wall Street analysts do not recommend cryptocurrency stocks that do not have diversified revenue sources and are highly dependent on the price movements of cryptocurrencies, given their high volatility.

Riot Blockchain, Inc. (RIOT) and Silvergate Capital Corporation (SI) are two such stocks that Wall Street analysts advise investors to approach with caution. One major concern with these companies is that their prices are largely reliant on the price of bitcoin and other digital currencies.

Riot Blockchain, Inc. 

RIOT is a digital currency mining company that is focused on building and supporting the Blockchain technologies ecosystem. The company, through its subsidiary TESS Inc., delivers  a blockchain-based escrow service for wholesale telecom carriers. The company is also involved in purchasing and selling digital currencies, and providing accounting, audit, and verification services for blockchain-based assets.

On January 19,  RIOT deployed 2,500 Bitmain S19 Pro Antminers. The  deployment raises RIOT’s total number of Antminers in operation to 9,540. These Antminers are expected to increase its operational hash rate capacity by nearly 50% to an estimated 842 petahash (PH/s).

Last December, RIOT teamed  with Enigma Digital Assets AG and Lancium, LLC to launch an 8-megawatt (MW) pilot project to assess the potential for higher productivity and lower cost mining opportunities in Texas. The strategic move is aimed at achieving economies of scale through low-cost infrastructure and ultra-low-cost electricity.

RIOT’s total revenues have increased 41.5% year-over-year to $2.46 million in the third quarter ended September 30, 2020. However, its top-line growth has not translated into overall profitability. Its operating loss has risen 11.2% from its  year-ago value to $2.11 million. It has also  reported a net loss of $1.72 million, with a $0.04 loss per share.

Analysts expect RIOT’s loss per share to increase  33.3% year-over-year to $0.08 in the about-to-be reported quarter (ended December 31, 2020). However, the company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 183.5% year-to-date.

The only Wall Street analyst covering the stock has set a price target of $28, indicating a potential downside of 41.9%.

RIOT shares were trading at $46.78 per share on Friday afternoon, down $1.39 (-2.89%). Year-to-date, RIOT has gained 175.34%, versus a 5.15% rise in the benchmark S&P 500 index during the same period.

Silvergate Capital Corporation

SI is the leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry. The Company’s real-time payments platform, Silvergate Exchange Network, enables the movement of the currency between participating digital currency exchanges and investors. Its services include commercial banking, business lending, commercial and residential real estate lending and mortgage warehouse lending.

On March 23, named  Coinbase Custody as a custodian for SEN Leverage, which would provide secure, institutional-grade access to capital through U.S. dollar loans collateralized by bitcoin. The engagement offers institutional investors increased access to capital and expands SI’s SEN Leverage product.

SI’s total interest income has increased 10.4% year-over-year to $22.21 million in the fourth quarter, ended December 31 Its net income has risen 153.4% from the year-ago value to $9.12 million. However, its efficiency ratio has decreased by 694 basis points year-over-year to 65.9%.

A consensus revenue estimate of $29.70 million for the current quarter (ending March 31, 2021) represents  a 45.5% improvement year-over-year. Its $0.46 EPS  for the current quarter is expected to increase by 100%. Moreover, the company beat the Street’s earnings estimates in each of the trailing four quarters. The stock has gained 71.5% year-to-date.

Of the four price targets available for the stock, the highest is $40.00 and the lowest is $26.00. The average price target of $30.25 indicates a potential downside of 76.3%.