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Why Trendy Bitcoin Stocks Like Riot Blockchain Are Tanking

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Shares of several trendy bitcoin-related stocks—including Riot Blockchain (RIOT - Free Report) , Longfin (LFIN - Free Report) , and the Bitcoin Investment Trust (GBTC - Free Report) —fell sharply on Thursday morning, despite gains throughout the broader markets.

Today’s slump in bitcoin stocks comes alongside steep declines in several of the world’s most popular cryptocurrencies. Bitcoin has slipped more than 5% over the last 24 hours, while Ethereum and Litecoin are down 1% and 4%, respectively. Bitcoin Cash, a so-called “hard fork” of Bitcoin created this summer, has lost nearly 15% of its value.

For most of these cryptocurrencies, Thursday’s volatility represents a drop from new highs—which were witnessed after traders displayed hesitation toward the original Bitcoin earlier this week. Indeed, on Tuesday, Bitcoin tumbled while several notable altcoins, including Bitcoin Cash, soared.

The move was partially sparked by concerns over Bitcoin’s increased transaction fees and slow confirmation times—two issues that were highlighted by Bitcoin.com co-founder and CTO Emil Oldenburg in a recent interview with Swedish tech site Breakit.

“An investment in Bitcoin right now I would say is the most risky investment one can make. It is extremely high-risk. I’ve actually sold all of my Bitcoins recently and switched to Bitcoin Cash,” Oldenburg said this week.

Oldenburg’s caution ignited further interest in the aforementioned bitcoin alternatives, including Bitcoin Cash. Today’s retreat underscores the ever-present volatility that we see in cryptocurrency valuations, as investor sentiment surrounding these blockchain-powered digital coins shifts on a nearly day-to-day basis.

For trendy stocks like Riot, Longfin, and GBTC, volatility in the crypto market causes volatility in their own valuations. Shares of Riot were down about 12% in morning trading Thursday, while Longfin slumped more than 13% and GBTC plummeted over 16%.

These companies are still up significantly over the past three months, but their unprecedented runs seem to be losing steam. GBTC, which operates as a bitcoin holding fund and often trades at a 100% premium to its bitcoin-per-share value, has now dropped more than 40% from the highs it reached last week.

Elsewhere, the popular biotech firm turned blockchain investor, Riot Blockchain, has slumped about 30% from its highs. Questions about the legitimacy of Riot’s business model, which sees the once-dying diagnostics machinery company invest in various firms involved in the bitcoin and Ethereum ecosystems, were exacerbated this week after the stock was targeted by Citron Research.

“No reason to short any stocks now that even have business while the market has given us stocks like $RIOT. Starting short position here. The bar for finding good shorts has been lowered,” tweeted the famed short-selling firm on Monday.

Meanwhile, Longfin has tumbled more than 50% from the peak it reached earlier this week. Longfin became the first fintech company to list its shares on the Nasdaq through the Reg A+ listing loophole created in 2012, and then its stock price exploded after the company announced the acquisition of Ziddu.com, a blockchain research company working on decentralized solutions for lending and financing.

On Monday night, Longfin CEO Venkat Meenavalli called his company’s new valuation “insane” in a televised interview on CNBC—a rare move that perfectly encapsulates how ridiculous the thirst for crypto-related stocks has gotten.

For more on the crazy momentum we have seen in this industry latelty, check out the latest episode of the Zacks Tech Talk Tuesday podcast:

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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