If you’re involved or invested anywhere in the cryptocurrency space, then you know that the Bitcoin halving is the biggest event on everyone’s minds. If you’re someone who invests in cryptocurrency mining companies, then you’re probably busy looking at how your investments stack when competing against other companies, and you should be. The halving is going to produce a seismic shock in the way miners do business, and send ripples through the entire community. This is the only asset class where the entire infrastructure shifts every four years to meet an artificially induced change in supply.
Riot Blockchain (RIOT.Q) is an American-based company with leased facility operating out of Oklahoma City dedicated to mining Bitcoin, Bitcoin Cash and Litecoin. It’s one of the largest cryptocurrency mining operations among publicly listed companies in North America, enjoying full 24/7 real-time monitoring of status and profitability.
The company is decently prepared for the halving, having produced approximately 157.2 bitcoins, and 400.2 litecoins for the third quarter of 2019, and again another 102 bitcoins in March, with their newly installed Bitmain antminer S17’s. The downturn following COVID-19 must have produced a butt-pucker moment as there was no way they could have known the price was going to rebound the way it did, but staying the course has proven to be a good bet. The actual numbers caused a reduction of 16% efficiency, and future changes in the network-wide hash rate and difficulty will definitely impact Riot’s Bitcoin production.
- Total mining revenue in 2019 was $6.7 million compared to $7.7 million in 2018.
- Gross profit, which is computed as mining revenues in excess of cost of revenues (excluding depreciation and amortization), was $644,000 (9.6% of total mining revenues), as compared to $1.9 million (24.9% of total mining revenues) in 2018. The decreases in revenue and gross profit were primarily due to changes in cryptocurrency prices as well as increases in the difficulty index associated with solving mining algorithms.
- Selling, general, and administrative (“SG&A”) expenses in 2019 decreased 56% to $9.2 million from $20.9 million in 2018. The decrease in SG&A expenses was primarily due to reductions in staff, decreases in stock-based compensation expense, consulting fees, and legal fees, which were slightly offset by increases in audit and related professional fees.
- Net loss for 2019 was $20.3 million, or $(1.02) per share, compared to net loss of $60.2 million, or $(4.33) per share, in 2018.
- At December 31, 2019, the Company had $11.3 million in cash and cryptocurrencies, as compared to $932,000 at December 31, 2018.
For a comparison point, we can look at their production numbers prior to the Oklahoma City facility upgrade, in which they mined 45 bitcoin in December 2019 using 7,500 S9’s. They hadn’t deployed the S17’s yet, spelling a 126% increase in bitcoin mined after the upgrade. Right now, the company is operating 4,000 S17’s and a token force of S9’s, with an aggregate hashing power of 248 petahash per second (Ph/s).
The facility has 107,600 square feet of space designated three different coins, and the facility costs are primarily the electricity required to close Bitcoin’s blocks, with most of it coming during times of peak demand. The best part is that it’s not theirs. Oklahoma City has been trying its best to position itself as one a hub for colocation services, and offering some of the best prices, which is something that companies like Riot have done well to take full advantage. The only foreseeable problem is the factored-in cost of air conditioning for the ASIC-rigs, which will likely mean that Riot may have to pay more per kilowatt hour than perhaps other places would offer.
Their effects from COVID-19 have been minimal. They took the aforementioned hit to their mining operation when the COVID-19 downturn cut bitcoin’s price in half, but seem to have recovered decently well alongside the asset’s price.
A quick glance at Riot’s chart shows relative stability, with the only exception being the sharp drop shared by assets and companies around the globe in the wake of the coronavirus. Now the company recognizes that the advent of the virus has a potential to impact the company’s workforce operations, finances and liquidity, and has stated that they will continue to monitor the situation and provide updates when necessary. They’ve been taking the same contingency steps as most other companies to minimize the impact on their employees and operations.
This is a company well prepared to deal with the halving.