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Bitcoin ASIC miners in the warehouse.  ASIC mining equipment on racks for mining cryptocurrency in a steel container.  Blockchain Technology Application Specific Integrated Circuit Unit Storage

artiemedvedev

Riot Blockchain (NASDAQ:NASDAQ:RIOT) is another fast-growing bitcoin (BTC-USD) mining company which I have not yet covered on Seeking Alpha.

Although I think bitcoin will be accepted as currency everywhere in the future, I think it is foolish to trade bitcoin for the US dollar right now.

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

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

Riot Preview

Riot Blockchain is an American bitcoin mining company that mines bitcoin in central Texas, USA. The company owns the unique bitcoin mining facility, United Stateswhich has a total power of 750 MW.

Riot Whitestone Bitcoin Mining Facility

Riot Whitestone Bitcoin mining facility (riotblockchain.com)

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

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

Net losses were -$366.3 million for the quarter, primarily due to Bitcoin impairment charges caused by a decline in the price of Bitcoin.

The company plans to increase its mining fleet to 115,450 ASIC miners by Q1 2023 at a hash rate of 12.5 EH/s.

Roit hash rate growth in 2023

Riot hash rate growth in 2023 (riotblockchain.com)

To ramp up future production, Riot announced a 265-acre, 1-gigawatt expansion site in Navarro County, Texas, with bitcoin mining operations at the new facility remaining on track to begin summer. next.

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

The total value of Riot’s cash ($270 million) + bitcoin holdings ($1,343 million) equals $404 million. Investors are paying nearly a 3x premium on the company’s short-term cash.

Riot trades at a price-to-sales ratio of 2.77, which is cheaper than Marathon Digital (MARA) 7 P/S ratio.

Chart
RIOT PS ratio given by Y-Charts

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 opinion on Riot Blockchain

Riot produced solid bitcoin production in August 2022 during the current crypto bear market. Riot produced 374 bitcoins (down 17% YoY) and earned $3 million in energy credits that can be converted into bitcoins.

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

August 2022 Bitcoin production by the largest listed miners

Company August 2022 BTC produced
Riot Blockchain (RIOT) 374
Marathon Digital Holdings (MARA) 184
Basic Science (CORZ) 1,334

Source: Author, based on company filings

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 as of the second quarter of 2022.

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

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

Selling Bitcoin at current market prices doesn’t make sense due to all the fear and panic surrounding the crypto markets.

Although Riot has an impressive return, I wish management would use more creative ways to fund capital, such as selling stocks or taking on low-interest debt while Bitcoin prices are depressed.

Risk factors

Riot has several potential issues to deal with if things don’t go as planned.

  • Bitcoin prices could be depressed over the next 6 months and Riot’s cash flow will be affected by the crypto bear market.
  • Selling Bitcoin will cost the company a lot of money in the long run if Bitcoin goes above $100,000 in the 6 digits. Management might regret disposing of a long-term durable asset for short-term gains.
  • Riot may dilute shareholders through equity offerings to raise funds in the future. Dilution is only a good option if a company HODLs its Bitcoin like MicroStrategy (MSTR) or Marathon Digital does.
  • Inflation fears could force the company to delay scaling up its mining facility, which will lead to lower Bitcoin production.
  • Energy prices could rise and reduce Riot’s Bitcoin production margins in the future.

Conclusion

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

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

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



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