Riot Blockchain: Another Bitcoin Mining Stock (NASDAQ: RIOT)

Bitcoin miners ASIC in stock.  ASIC mining equipment on racks for cryptocurrency mining in steel containers.  Storage of specific integrated circuit units for the application of blockchain technology

artiemedvedev

Riot blockchain (NASDAQ:NASDAQ: RIOT) is another fast growing Bitcoin (BTC-USD) mining company that I haven’t talked about on Seeking Alpha yet.

Even though I believe Bitcoin will be accepted as money everywhere in the future, I think it’s foolish to trade Bitcoin for US dollars at the moment.

However, I want to give you several Bitcoin-related companies to choose from and Riot is one of the strongest.

This article will discuss the pros and cons of investing in Riot Blockchain stock and share some key details about the company’s future prospects.

Riot overview

Riot Blockchain is an American Bitcoin mining company that mines Bitcoin in Central Texas, United States. The company owns the only Bitcoin mining facility, Whitestone USA

which has a total power of 750 MW.

Riot's Bitcoin Whitestone mining facility

Riot’s Whitestone Bitcoin Mining Facility (riotblockchain.com)

The company has 46,658 Bitcoin miners distributed with a hashrate of 4.8 EH / S.

In the final quarter of Q2 2022, Riot generated $ 72.9 million in revenue (up 112% yoy) and mined 1,395 Bitcoins (up 107% yoy) in total.

Net losses were $ -366.3 million in the quarter, mainly due to Bitcoin devaluation charges caused by a drop in Bitcoin’s price.

The company plans to increase its mining fleet to 115,450 ASIC miners by the first quarter of 2023 at a hashrate of 12.5 EH / s.

Roit 2023 hash rate growth

Riot hash rate growth in 2023 (riotblockchain.com)

In order to increase future production, Riot announced a 265-acre, 1-gigawatt expansion site in Navarro County, Texas, with Bitcoin mining operations at the new facility continuing to begin next summer.

Riot holds 6,720 Bitcoins on its balance sheet as of August 31, 2022.

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Riot’s total cash value ($ 270 million) + Bitcoin holdings ($ 1343 million) is $ 404 million. Investors are paying nearly 3x the premium on the company’s short-term cash.

Riot trades at a price / sell ratio of 2.77, which is cheaper than Marathon Digital’s (MARA) 7 P / S ratio.

Graphic
PS RIOT report data of Y Graphs

Of course, more investors are buying MARA shares because the company has nearly 4,000 more Bitcoins on its balance sheet (10,311 as of August 31, 2022).

My take on Riot Blockchain

Riot produced solid Bitcoin production in August 2022 during the current cryptocurrency bear market. Riot produced 374 Bitcoins (down 17% year-on-year) and earned $ 3 million in energy credits that can be converted into Bitcoin.

Riot produced twice as much Bitcoin as its main competitor, Marathon Digital Holdings, but in my opinion the company made some crucial mistakes.

August 2022 Bitcoin production by the largest publicly traded miners

Agency August 2022 BTC produced
Riot Blockchain (RIOT) 374
Marathon Digital Holdings (MARA) 184
Core Scientific (CORZ) 1.334

Source: Author, from company filing

Riot sold 355 Bitcoins in August 2022 for a total of $ 7.7 million to bolster its balance sheet. The company held approximately $ 270.5 million in cash in the second quarter of 2022.

Riot’s constant decision to sell Bitcoin is probably the only reason I don’t own RIOT stock.

In my opinion, bitcoin is the most important asset class of the future and I prefer to invest in companies that use a long-term HODL strategy.

Selling Bitcoin at current market prices makes no sense due to all the fear and panic surrounding the cryptocurrency markets.

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Although Riot has an impressive production, I wish management used more creative ways to finance capital such as selling stocks or taking on low-interest debt while Bitcoin prices are low.

Risk factors

Riot has several potential problems to address if things don’t go as planned.

  • Bitcoin prices could be depressed over the next 6 months and Riot’s cash flow will be impacted by the bear market for cryptocurrencies.
  • Selling Bitcoin will cost the company a lot of money in the long run if Bitcoin surpasses $ 100,000 in the 6 digits. Management may regret having dumped a long-term asset for short-term gains.
  • Riot can dilute shareholders through share offerings to raise money in the future. Dilution is only a good option if a company HODLs its Bitcoins such as MicroStrategy (MSTR) or Marathon Digital.
  • Fears of inflation could force the company to delay the downsizing of its mining facility, which will lead to a reduction in Bitcoin production.
  • Energy prices could rise and decrease Riot’s Bitcoin production margins in the future.

Conclusion

Riot Blockchain is not my favorite Bitcoin mining title to hold because I don’t like companies that sell Bitcoin to fund operations. Whenever you sell Bitcoin for US dollars, you are showing investors that you are long on fiat currencies and short on Bitcoin.

However, I like Riot’s increased production and give them a solid purchase rating at these current price levels.

If cryptocurrency markets recover in 2023, Riot Blockchain is a solid stock to buy when others are afraid right now.

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