Cryptocurrency Investors: The Cost of “Fundamental” Analysis May Be Higher Than You Think

Last November, the mainstream “club” went bulls-to-the wall for RIOT Blockchain. The 80% change in price since then isn’t what they had in mind.

by Nico Isaac
Updated: June 01, 2022

Thanks to the mask mandates, collective efforts of my small town to protect its residents, and a bit of luck, I was able to evade Covid through its first, second, third, fourth and fifth waves. But this week, after traveling by airplane over the Memorial Day week, my number came up and I tested positive. Gratefully, after a rough couple of achy, icky days in bed, my symptoms are easing.

My best friend, who recently went through her own bout with Covid, mailed me a beautiful card with a soaring blue bird on the front. Inside, the card read: "Welcome to the Club. The cost of admission sucks." (That's why she's my best friend.)

Reading that card made me think; granted, I was on so much cold medicine I mistook my cat for the mailman but... still. I had this feverish yet strangely related thought about the cost of admission many investors pay to be part of the club of mainstream financial analysis. And how that cost, like mine to Covid, can in so many words, suck.

The reason being: The bedrock of that mainstream model -- namely, that financial markets are driven by external news events known as "fundamentals" -- is ultimately flawed. And those who use that model to foretell trend changes, are often misled into missing major turns.

Take, for example the popular Bitcoin miner, Riot Blockchain, Inc. (RIOT). Last fall, the club of mainstream analysis was uncorking the bubbly in celebration of an across-the-board crypto breakout in which it would be "almost impossible to lose money." (Oct. 18 Marketwatch)

RIOT's "fundamental" backdrop had more bulls than a Texas state fair, including: Record-breaking third-quarter revenue, Bitcoin's rally to record highs, and the long-awaited presentation of Wall Street's letter jacket. Wrote NewsBtc.com on October 27:

"Brace for Impact: Wall Street is Headed Straight for Bitcoin, Says Analyst..."

On November 12, YahooFinance added this bullish note for the Bitcoin miner's prospects:

"Riot Blockchain RIOT, now one of the world's largest public bitcoin miners following its recent acquisition of Whinestone US, is positioned to provide us with the rare and exciting opportunity to profit off the resurging crypto market's already prolific rally.

"With bitcoin's ripping rallying staying alive coupled with Riot Blockchain's continuous operational enhancements as its scales, analysts are getting increasingly bullish on RIOT, inflating EPS estimates across all timelines and propelling the stock into a Zacks Rank #1 (Strong Buy).

"All 5 of the covering sell-side analysts call RIOT a strong buy today, with an average price target of $52 a share, with some more bullish analysts giving it targets north of $80 (over 100% upside from here)."

And yet, rather than abiding by its bullish cues, RIOT (along with Bitcoin) turned down in November in a wrenching, 80% crash to 2-year lows this May.

Even in my feverish state, I can still see this doesn't add up.

So, I ask you to consider the possibility that something other than "fundamentals" are at play. We believe that something is collective investor psychology, which unfolds as Elliott wave patterns directly on price charts. Here, on October 27, our Trader's Classroom editor Jeffrey Kennedy assessed the Elliott wave picture on RIOT's price chart.

His analysis didn't include details about the company's revenue or expansion plans or any other news-related detail. It focused solely on the potential wave counts and their unique implications for RIOT's future. Jeffrey showed a possible bullish scenario, and then included this long-term, bearish alternative:

"Again, the crypto market is challenging. I never want to approach a market with just, say, a one-sided bias/belief. I like to have a dual trade plan. I want to look at the best-case scenario, but I also want to be aware, too, of the worst-case scenario because that can easily happen.

"In this case, the bearish scenario gauges that any kind of rally to the upside is capped by resistance [near 35-40] and then continues to grind lower, possibly into the 10 area."

From there, RIOT followed Jeffrey's alternate road map: Prices rallied a bit above his cap to 46 and then proceeded to embark on the 80% crash into May.

Of course, trading cryptocurrencies carries immense risk. Jeffrey himself describes the sector as "swimming with sharks, where you need to be able to assume and be okay" with that risk. Likewise, Elliott wave analysis in his Trader's Classroom is for educational purposes.

But recently, Jeffrey joined up with 3 of his EWI technical analysis colleagues to create a groundbreaking, collaborative resource, EWI's new Crypto Trader's Classroom, so that no crypto trader should have to consent to give control over to anyone else but themselves.

Together, the Crypto Trader's Classroom team utilizes technical tools from momentum indicators to Elliott wave patterns to empower marketgoers with the knowledge, skills, and experience to understand that nature of high-confident opportunities in the cryptos they follow.

See below to learn more!