Bitcoin
Is Riot Blockchain an Obvious Buy After Bitcoin Halving?
O Bitcoin The (CRYPTO:BTC) halving event occurred in April, as expected. Bitcoin Miners now receive half the rewards for the same amount of work. Mining experts are like Riot Platforms (NASDAQ: RIOT) facing insurmountable economic challenges now, or are they about to soar due to the rising price of Bitcoin? Or is the truth somewhere in between?
Let’s take a closer look at Riot platforms to see what’s going on.
How Riot adapted to the 2020 halving
This isn’t Riot’s first halving rodeo. The company used to pursue patents on veterinary drugs, but acquired a small Bitcoin mining company in 2017 and shifted its focus to blockchain operations the following year. Two years later, on May 11, 2020, the third Bitcoin halved it happened.
It was a different time for Riot. In addition to the global impact of the current coronavirus pandemic, the company was building its Bitcoin mining infrastructure. Crypto mining generated $2.4 million in revenue in the first quarter of 2020 and $23.2 million a year later. Riot’s assets and equipment – largely responsible for its cryptocurrency mining hardware and facilities – have tripled in value over the same period. And the cost of electricity in the first quarter more than quintupled, from US$1.4 million to US$7.5 million.
Riot was burning a lot of cash at that time, keeping the lights on thanks to dilutive stock sales and a small amount of Bitcoin sales. And thanks to the halving of Bitcoin miner rewards, Riot’s Bitcoin production fell 28% year over year in the first full quarter following the 2020 halving.
Bitcoin prices were on the rise in this period, gaining a modest 10% from September 1, 2019 to September 1, 2020. But then some halving effects came in full force.
Survival of the Fittest in Bitcoin Mining
Halving events have put a lot of pressure on inefficient crypto miners. Many people and companies that generate Bitcoin data blocks with low-power hardware or high electricity costs are forced out of business with each four-year halving cycle. When these failed mining experts leave, the high-efficiency miners who remain will get a higher percentage of the total rewards.
“When these higher cost producers go down, [mining] the difficulty adjusts and this widens the margin again as we mine more Bitcoin,” Riot CEO Jason Les explained in a recent earnings call. “To achieve that long-term, to be a leading Bitcoin mining company, we have to focus on having that low energy cost and maintaining a low production cost in tougher spots in the market.”
The story continues
Riot’s strategy for the 2020 halving
The April 2020 halving presents another “hard spot” in the Bitcoin mining market. If history is any guide, low-cost miners like Riot should prosper as inferior rivals fade away – and the price of Bitcoin should start to rise as this dynamic plays out. Here’s how Riot’s business results performed during the 2020 halving cycle:
RIOT Revenue (TTM) Chart
Past results are no guarantee of future success and each halving cycle is different. Still, the economic themes surrounding this crypto market driver tend to rhyme and echo over time. In fact, Riot is in a stronger position this particular cycle, armed with a rich balance sheet and more substantial mining operations. The company is even reselling power to the Texas power grid as heat waves overwhelm the local power grid.
Riot is a no-brainer, but maybe a buy
Is Riot an obvious buy, then?
Not necessarily, but the stock could post solid gains if this halving cycle works like the last one. Riot’s market position, strengthened by its low-cost operations and expanding infrastructure, provides a strong case for potential growth.
However, you should review your risk tolerance, recognize Riot’s high-risk, high-reward nature and act accordingly. This investment is not for the timid, but could be a strategic addition for those who are optimistic about Bitcoin’s long-term prospects.
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Anders Bylund has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
Is Riot Blockchain an Obvious Buy After Bitcoin Halving? was originally published by The Motley Fool