Many people may feel tempted to buy shares in crypto-mining companies like Cipher Mining (CIFR) because of the rising interest rates for virtual currencies. Investors should be cautious and only invest in risk capital that they are able to afford.

Cipher Mining is a blockchain mining company that focuses on renewable energy. It has managed to corral two of the most popular business topics over the last three-years: cryptocurrencies, and special purpose acquisition corporations. Heavily hyped as democratized investment vehicles that give the average Joe a fighting chance against Wall Street’s alpha wolves, they have instead left a questionable performance record, presenting an awkward backdrop for CIFR stock.

Good Works Acquisition Corp., an unregistered firm looking to merge with a tech company, launched Cipher Mining’s first public offering in October last year. It distributed 15 million shares at $10 each unit. Reuters reports that Cipher Mining and the SPAC entered into a merger agreement in March.

Regular retail investors can participate in two-for-1 deals that allow them to access opportunities they wouldn’t normally be able to. Good Works, a shell company, allows anyone to be involved in every phase of the SPAC process, including the pre-merger and post-combination. Bloomberg Businessweek described SPACs, in an opinion piece that was sexist but nonetheless accurate, as “the poor man’s private capital funds”.

For bitcoin mining, the process of extracting BTC through algorithmic-intensive computing processes had become too onerous, as the crypto coin’s price soared exponentially from mere pennies to the five-digit rate it commands today. Fortunately, any brokerage account can now purchase shares in CIFR stock from publicly traded companies like Cipher Mining. It connects retail investors with the wider digital asset narrative.

At first, both options seemed like they would offer new opportunities to everyday investors. As time passed, however, things became more complicated. (See TipRanks stock charts for Cipher Mining)

The CIFR Stock Depends a Great Deal on the Pure Market Sentiment

SPAC is a democratized platform that allows anyone to purchase shares of a public entity at the original offering price. In theory, this puts ordinary people at the same level with institutional buyers of traditional IPOs. Participants who did not do enough research soon realized the dangers of SPAC-based SIPOs.

As equity-rich sponsor and major backers covered number one, this has meant that business combinations have been underperforming benchmark indices so far in the year. Retail buyers are left scrambling to find scraps. Unfortunately, CIFR stock hasn’t been able to convincingly beat the negative reputation of blank-check firms. Shares are currently only 3% higher than their original offering price at the time this article was written.

Cipher Mining investors see the absence of strong momentum as a double blow because the underlying cryptocurrency itself has a democratic air. The internet allows bitcoin and other digital assets to trade anywhere there is an internet connection. The sector enjoys a romanticism.

However, just as with SPACs, the facilitation of democratization alone hasn’t been enough to provide a comfortable backdrop for conservative investors. Instead, virtual currencies are subject to wild gyrations; this volatility could severely impact CIFR stock, just as it did to older crypto-mining-related firms like Marathon Digital (MARA) and Canaan (CAN).

Bitcoin, mathematically, is becoming a more high-risk venture with lower rewards. This then makes it difficult to invest in downwind companies like crypto-mining. With 5,959% of profits, 2013 was an exceptional year in terms bullish returns. BTC’s 2017 return was 1,291%, another milestone year. The coin saw a 302% increase in value by 2020.

The other side of the coin, the year 2011 saw a 11% drop in Bitcoin’s value. In 2014, the bitcoin price plunged 61%. 2018 was worse with a 72% drop. It is clear that the positive impact of bitcoin rallies has slowed while bitcoin crashes are increasing in severity.

Under this inversely related paradigm, it’s more imperative than ever to call an investment like CIFR stock correctly. A wrong entry could lead to financial ruin.

Not surprisingly, financial analysts have a lackluster view of Cipher, with the company garnering a “Smart Score” of only 4, indicating a neutral-to-cautious stance. There is also little Cipher coverage so it’s difficult to gauge risk sentiment.

Don’t Disregard Common Sense in ‘New’ Investments

One of the most well-known passages in the Book of Ecclesiastes is where an unidentified writer laments the lack of new things. The same principle can be applied to investing, though it is not recommended.

Even though the details and nuance of different investment vehicles may be slightly different, it is still a fact that there are always risks when you invest in the capital markets. Further, if anyone suggests that a new investing fad benefits the average person, you don’t necessarily need to run but you do need to research the claims.

If there’s any authentic truism in the market, it’s that you have no friends on Wall Street. You have no incentive to help your opponents.

Disclosure: This author had a position for a while in Bitcoin.

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