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Is Riot Blockchain an Easy Buy After Bitcoin Halving?
Lower Mining Rewards, Higher Financial Stakes: Can Riot Platforms Shine After Bitcoin Halving? Let’s find out.
THE Bitcoin (Bitcoin 0.98%) the halving event took place in April, as planned. Bitcoin miners now you get half the reward for the same amount of work. They are mining specialists like Riot control platforms (REVOLT -4.10%) are facing insurmountable economic challenges now, or are they poised to skyrocket in the wake of Bitcoin’s price surge? Or is the truth somewhere in between?
Let’s take a closer look at Riot Platforms to see what’s up.
How Riot adapted to the 2020 halving
This isn’t Riot’s first halving rodeo. The company used to pursue veterinary medicine patents, but acquired a small Bitcoin miner in 2017 and shifted its focus to blockchain operations the following year. Two years later, on May 11, 2020, the third Bitcoin halving took place.
Those were different times for Riot. Aside from the global impact of the then-current coronavirus pandemic, the company was building its Bitcoin mining infrastructure. Cryptocurrency mining generated $2.4 million in revenue in the first quarter of 2020 and $23.2 million the following year. Riot’s properties and equipment, which largely represent cryptocurrency mining hardware and facilities, have tripled in value over the same time frame. And the cost of electricity in the first quarter more than quintupled, from $1.4 million to $7.5 million.
Riot was burning a lot of cash back then, 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 have been strong over this period, gaining a modest 10% from September 1, 2019 to September 1, 2020. But then a couple of halving effects hit the ground running.
Survival of the fittest in Bitcoin mining
Halving events put a lot of pressure on inefficient cryptocurrency miners. Many people and companies that generate blocks of Bitcoin data with low-power hardware or high electricity costs are forced out of business in each four-year halving cycle. When these failed mining experts leave, the remaining high-efficiency miners will get their hands on a larger percentage of the total rewards.
“When the highest-cost producers collapse, [mining] the difficulty scales and that expands the margin again as we’re mining more Bitcoin,” Riot CEO Jason Les explained on a recent earnings call. “To achieve this long-term goal, to be a leading Bitcoin mining company , we need to focus on having this low cost of energy and maintaining a low cost of production in the most difficult parts of the market.”
Riot’s strategy for the 2020 halving
The April 2020 halving represents another “rough spot” in the Bitcoin mining market. If history is anything to go by, low-cost miners like Riot should thrive as inferior rivals fade – and Bitcoin’s price should start to rise as this dynamic develops. Here’s how Riot’s business results performed during the 2020 halving cycle:
RIOT Revenue (TTM) data of YCharts
Past performance is no guarantee of future success and every halving cycle is different. However, the economic themes around this driver of the cryptocurrency market tend to rhyme and echo throughout the ages. If anything, Riot is in a stronger position heading into this particular cycle, armed with a rich balance sheet and larger mining operations. The company is even selling power back to the Texas power grid as heat waves strain the local power grid.
Riot is a no-brainer, but maybe a buy
So is Riot a very simple purchase?
Not necessarily, but the stock could see solid gains if this halving cycle works like the previous one. Riot’s position in the market, strengthened by its low-cost operations and infrastructure expansion, provides compelling reasons for potential upside.
However, you should review your risk tolerance, recognize the high-risk, high-reward nature of Riot and act accordingly. This investment is not for the faint of heart, but it could be a strategic addition for bulls The long-term prospects of Bitcoin.