Vested Shorts: Riot Platforms ramps up Bitcoin mining

by Parth Parikh
August 12, 2023
2 min read
Vested Shorts: Riot Platforms ramps up Bitcoin mining

Market Snapshot

The S&P 500 Index and Nasdaq Composite declined for the second consecutive week due to stronger-than-expected Producer Price Index (PPI). These affected investor sentiment, coming a day after a lower-than-expected reading for the Consumer Price Index (CPI) had been cheered.

Data as of market close 11 Aug 2023

Week ended on 11 Aug 2023. Source: AlphaScreener

Riot boosts Bitcoin production as Halving event nears

Riot Platforms, one of the leading Bitcoin mining companies, surpassed Wall Street expectations by increasing its Bitcoin output by 27% in the second quarter of 2023. The company also managed to lower its average mining cost to $8,389 per Bitcoin, a significant drop from $11,316 in the same period last year. However, despite these achievements, the company still posted a net loss of $27.7 million or $0.17 per share. This loss could worsen in the coming months as the Bitcoin network prepares for another Halving event. 

Source: RIOT Q2 2023 Quarterly Update

The Halving event is a programmed feature of the Bitcoin protocol that reduces the reward for mining new blocks by half every 210,000 blocks or roughly every four years. The next Halving is expected to occur in Q2 2024, which will make it harder for Bitcoin miners like Riot Platforms (RIOT), Marathon Digital Holdings (MARA), and Iris Energy Ltd (IREN) to maintain their profitability and market share. Bitcoin mining is a capital-intensive industry that requires constant investment in new hardware and software to keep up with the increasing difficulty and competition in the network. As a result, many of these companies are operating at a loss despite the recent surge in BTC prices.

The future cash flows of these companies are highly dependent on the price and demand of Bitcoin, which are unpredictable and volatile. To fund their expansion plans, these companies have two options: either borrow more money or issue more shares. Historically, Riot has opted for the latter. In July 2022, the company doubled its share count from 170 million to 340 million. Although this strategy gives the company more flexibility, it also dilutes the value and earnings per share of existing shareholders.

To diversify its revenue streams, Riot has recently started to explore power curtailment credits. These are incentives that electricity providers offer to customers who agree to reduce their power consumption during peak hours or when there is excess supply. Since Bitcoin mining consumes significant electricity, Riot can earn credits by turning off some of its machines when requested. The company reported earning 18.3 million in June and July by NOT mining Bitcoin.


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