There’s a pretty good chance that when the curtain closes on 2021, it’s going to be remembered as the year of the retail investor.
Beginning in mid-January, retail investors on Reddit’s WallStreetBets chatroom began banding together to target stocks with very high levels of short interest. The goal for these relatively young investors has been to effect a short squeeze — i.e., an event where pessimists effectively run for the hills and cover their short positions, sending a rising stock price skyrocketing higher.
Over the past three months, we’ve watched as dozens of companies have been hit with retail investor-fueled short squeezes to some varying degree. While many of these squeezes last a couple of days, at most, a few have generated lasting gains. Perhaps none is more famous than video game and accessories retailer GameStop (NYSE:GME).
A nearly $34,000 bet on GameStop a year ago would have made you a millionaire
GameStop is the company that started the Reddit frenzy. It was the only publicly traded company in mid-January that had a short interest relative to float of more than 100%. This made it the perfect target for retail investors, who bought shares and out-of-the-money calls in GameStop. Three months after the initial squeeze, GameStop’s share price is still up by more than 600%.
What’s more, GameStop’s one-year returns are truly jaw-dropping. Investors who had the foresight, stomach, and luck to put their money to work in the struggling gaming company one year ago, as of April 13, are sitting on gains of 2,874%. To put this into some context, if you invested $33,650 in GameStop on April 13, 2020, you’re now a millionaire.
And yet, GameStop’s nearly 2,900% 12-month gain is only the eighth-best performance among stocks with a market cap of at least $300 million. The following three highfliers have not just outperformed GameStop over the trailing year — they’ve at least doubled up its 2,874% gain.
Riot Blockchain: Up 5,767% over the trailing year
Here’s an idea to wrap your head around: Cryptocurrency mining company Riot Blockchain (NASDAQ:RIOT) has gained almost 5,800% over the trailing year — and that’s only good enough for the third-best performance among publicly listed companies with a market cap of at least $300 million!
Cryptocurrency miners are people or companies that use high-powered computers to solve highly complex mathematical equations for a group of transactions known as a block. Resolving these equations verifies and validates transactions on a cryptocurrency network, resulting in the person or company being paid a block reward.
Riot Blockchain specifically focuses on mining Bitcoin (CRYPTO:BTC), the world’s largest digital currency by market cap. Following news just over a week ago that it had placed an order for 42,000 S19j Antminers from Bitmain, it’ll have in the neighborhood of 81,150 Antminers in service when fully deployed. According to the press release, Riot isn’t expected to receive all of its ordered miners until October 2022.
Furthermore, a day after its huge Bitmain order, the company announced a cash-and-stock deal worth $651 million to acquire Whinstone, the operator of North America’s largest Bitcoin hosting facility. With this acquisition and the Antminer order, Riot effectively blew through most of its cash on hand.
Though a higher Bitcoin price helps Riot generate additional revenue, the company is facing increased competition in an industry with virtually no barrier to entry. Additionally, the block reward for Bitcoin (currently 6.25 tokens) halves every couple of years. And let’s not forget that Bitcoin has had three separate 80% or greater pullbacks over the past decade. Riot is a company that’s nearly devoid of innovation and entirely reliant on an external catalyst (Bitcoin) to head higher. This suggests its gains may prove fleeting.