Riot Platforms Preps Profit Defense with Risk Catalog Amid Halving

In its latest annual report, Bitcoin miner Riot Platforms acknowledged the potential impact on its balance sheet due to a confluence of factors. This includes the ongoing global chip shortage, the need to continuously grow hash rates, and a deepening pro-climate agenda in the United States.

Riot, a renowned player in the Bitcoin mining sector, highlighted more than 13 key risks, specifically addressing challenges to its future profitability in the dynamic mining landscape.

Global Chip Shortage and Supply Chain Crisis

According to its February 23 annual 10-K filing, one of the primary concerns Riot Platforms underscored is the global chip crisis, attributing it to the scarcity of manufacturers producing the “highly specialized” ASIC chips. The filing reads:

“The ongoing global supply chain crisis, coupled with increased demand for computer chips, has created a shortfall of semiconductors, resulting in challenges for the supply chain and production of the miners we employ in our Bitcoin Mining operations.”

Challenges in Adapting ASIC Miners

Regarding Riot’s significant investment in acquiring 66,560 miners worth $291 million from MicroBT in December, the company stated that it will continue to pay “higher than usual” costs to acquire mining machines until this chip shortage crisis is over.

Moreover, the miner acknowledged potential challenges arising from design flaws. Notably, Riot has historically faced struggles with software and firmware complications while adapting miners to operate in their “immersion-cooled” environments. The filing states:

“To compete in this highly competitive industry, we believe we will need to continue to acquire new miners, both to replace those lost to ordinary wear-and-tear and other damage and to increase our hash rate to keep up with a growing global network hash rate.”

Bitcoin Halving and Revenue Impact

Notably, Riot Platforms also noted the imminent Bitcoin halving, which is expected in April 2024. While historical trends indicate a potential increase in Bitcoin prices during such events, the miner emphasizes the absence of a guarantee for favorable price changes.

According to the filing, a failure of the Bitcoin price to compensate for reduced mining rewards could result in decreased revenue:

“If a corresponding and proportionate increase in the price of Bitcoin does not follow future halving events, the revenue we earn from our Bitcoin Mining operations would see a decrease, which could have a material adverse effect on our results of operations and financial condition.”

It is important to note that a January report by financial services company Cantor Fitzgerald predicts that the halving could potentially render nine out of the 11 largest publicly traded bitcoin miners unprofitable.

The list of miners which can face possible losses includes Marathon Digital, Riot Platforms, and Core Scientific, with a cost-per-coin rate of 50,559, 43,913, and 44,811, respectively.

Interestingly, the annual filing follows Riot Platform’s recent 2023 financial results. Despite the outlined challenges, Riot Platforms reported a 19% increase in Bitcoin production in 2023, mining a total of 6,626 BTC valued at $341.4 million at current prices. Additionally, the firm managed to decrease its average cost to mine Bitcoin by 33% to $7,539 in 2023, showcasing operational efficiency and cost management amid the challenges.