The fourth halving in the history of the cryptocurrency Bitcoin is expected in mid-April. For mining companies like Riot Platforms, there are some risks associated with the reward halving. The crypto company recently warned about these in its last annual report.
• Bitcoin halving is imminent
• Riot Platforms warns of risks in annual report
• Riot still sees itself in a good position
The Bitcoin halving, which is expected for mid-April 2024, is causing great excitement in the crypto sector in advance. Halving is a mechanism embedded in the Bitcoin code that is triggered every time 210,000 new blocks are added to the Bitcoin blockchain. Then the reward for mining companies that support the Bitcoin network with their computing capacity will be reduced by half for each new block they add to the chain. Currently, Bitcoin miners receive 6.25 Bitcoin for each new block, but after the halving this will only be 3.125 BTC. The reward halving will continue until a total of 21 million digital coins have been issued; Bitcoin issuance is ultimately limited to this limit.
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The halving also has a direct impact on the business model of so-called Bitcoin mining companies, as the electricity requirements and the general costs required for energy-intensive mining are then significantly higher in order to mine the same amount of Bitcoins.
Riot Platforms warns of risks
Listed mining company Riot Platforms has now taken the opportunity to warn about the risks associated with the upcoming Bitcoin halving in its annual report and has dedicated a separate section to the topic in the SEC filing.
Riot Platforms generally warns that its activity in the crypto sector also exposes it to financially unstable crypto companies that could damage the reputation of the entire crypto market. The mining company could be alluding to the collapse of the scandal-prone crypto exchange FTX, which dragged the entire crypto sector down and resulted in numerous bankruptcies in the cryptoverse. This also led to a collapse in Bitcoin prices, which had a corresponding impact on the business of Bitcoin miners. After all, the business model of the mining companies depends to a large extent on the volatile crypto prices, as Riot Platforms also emphasizes in the annual report.
The entire industry suffers from the collapse of financially troubled crypto companies, also because such bankruptcies are often accompanied by a breach of trust in the crypto community and stricter regulation, which in turn is reflected in lower BTC prices.
No guarantee of Bitcoin increase during halvings
With regard to the halving, Riot explains that in the past the Bitcoin price has always increased significantly in anticipation of the reward halving. However, there is no guarantee that this would continue to happen in the future and that the increasing mining costs could be offset again. As the company’s annual report states: “If a corresponding and proportional increase in the price of Bitcoin does not follow future halvings, the revenue we generate from our Bitcoin mining business would decline, having a material adverse effect on our operating results and our financial situation.”
While block rewards are of course the mining company’s main source of income, Bitcoin transaction fees have now become another important pillar in miners’ business. So miners receive a fee when they process and confirm Bitcoin transactions. However, these fees are subject to enormous fluctuations. As popularity grows and the network becomes more busy, fees increase. Currently, the fees are driven by the great popularity of Bitcoin ordinals, which plays into the hands of miners.
However, Riot Platforms warns in this context that increasing fees could in turn be a hindrance to the increasing adoption of Bitcoin as a payment method, so that demand and prices could decrease again: “If the demand for Bitcoin declines and Bitcoin prices fall in the future “, the market price of our securities may be significantly and adversely affected,” the company writes.
Difficulty increasing hashrate
In addition, Riot’s ability to remain competitive also depends on the extent to which the company is able to continuously increase its hashrate in line with the network. Hashrate is the computing power used in the network at a specific time. With a larger hashrate comes greater performance. Miners who have a higher hash rate than the entire network have a higher probability of being able to append the next block in the chain and thus also collect the Bitcoin reward. However, the more miners join the network, the harder it is to be superior with your own hashrate. And so Riot warns in its annual report: “However, there is no guarantee that any of the existing or investigated mechanisms for increasing the scaling of confirmation of cryptocurrency transactions will be effective.”
Riot remains confident
All in all, Riot Platforms sees itself as a match for the Bitcoin halving. It said in a statement in January: “Riot also intends to leverage our ability to acquire Bitcoin at a significant discount to the current market price by retaining a larger portion of our monthly Bitcoin production in the near future. This will be achieved through our strong Liquidity profile enables and will further consolidate our position as one of the largest Bitcoin holders.”
This is how 2023 went for Riot Platforms
Overall, things went very well for Riot Platforms in 2023 in the wake of the crypto rally. The company was able to increase the amount of Bitcoin rewards through its mining operations from 5,554 BTC mined in 2022 to 6,626 BTC in 2023. Revenue from mining activities increased from around $156.9 million in 2022 to $189.0 million in 2023 – an increase of 20.5 percent. This increase was also made possible by the use of more mining machines. Here the number of 88,556 devices rose in 2022 to 112,944 machines by the end of 2023.
Now it only remains to be seen whether Riot Platforms will be able to continue its success after the halving.
Editorial team finanzen.net
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