Bitcoin miner Riot says chip shortage, climate-focused regs are risks to profit

Bitcoin ( BTC ) miner Riot Platforms said that an ongoing chip shortage, the constant need to grow the hash rate and a deepening pro-climate agenda in the United States could potentially impact its balance sheet, according to its latest annual report.

Riot, one of the many Bitcoin mining firms preparing for the upcoming halving event, highlighted more than 13 key risks specifically to its future Bitcoin mining profitability in its Feb. 23 annual 10-K filing, which includes a section on risk factor disclosures.

One of the risk factors that Riot highlighted was the ongoing worldwide chip crisis because very few manufacturers can make the “highly specialized” ASIC chips it relies on.

“The ongoing global supply chain crisis, coupled with increased demand for computer chips, has created a shortfall of semiconductors,” Riot said, which could impact its mining operations over the long term.

In December, Riot agreed to buy 66,560 miners  worth $291 million from manufacturer MicroBT. It was “the largest order of hash rate” in the company’s history, according to the firm’s CEO, Jason Les.

In its latest annual report, Riot said it expects to continue paying “higher than usual” costs to obtain and install the mining machines until the chip shortage crisis is resolved.

However, even with access to ASIC miners, they could still be faced with “design flaws,” noted Riot.

The firm said it had suffered software and firmware complications in the past when trying to adapt its miners to operate in its “immersion-cooled” environments and that it may also experience similar issues in the future.

Meanwhile, Riot said there’s also a risk stemming from an increasingly “competitive industry,” which means the company needs to continue growing its hash rate as the global hash rate increases to maintain its market share.

“To compete in this highly competitive industry, we believe we will need to continue to acquire new miners, both to replace those lost to ordinary wear-and-tear and other damage and to increase our hash rate to keep up with a growing global network hash rate.”

Meanwhile, Riot also noted that Bitcoin faces “significant scaling obstacles” that could hinder its ability to become a widely accepted means of payment .

“The demand for Bitcoin may stagnate or decrease,” Riot said, which in turn could negatively impact Bitcoin’s price and, therefore, weaken Riot’s balance sheet.

$RIOT True Cost of Mining: $23,268

Not going to do a full $RIOT write up tonight, but wanted to share what I'm seeing as their True Cost of Mining based on their 10-K results for the full 2023 year.

The only major nuance I will share right now from my adjustments shown below is… pic.twitter.com/gSWYO6AIUr

— Ben Werkman (@BenWerkman) February 24, 2024

An increasingly pro-climate change agenda in the Texas and United States governments could present challenges for the firm, too, it said.

“New legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations.”

Riot said it may lose a competitive advantage should it be subject to stricter regulations than its peers in other regions.

Related: Bitcoin mining difficulty surpasses 80 trillion ahead of halving

Riot and the Texas Blockchain Council (TBC) recently secured a  favorable ruling from a United States District judge in a lawsuit against several U.S. energy officials that sought allegedly invasive data collection from cryptocurrency miners .

Meanwhile, Riot boosted its Bitcoin production by 19% in 2023, mining a total of 6,626 BTC, worth $341.4 million at current prices.

The firm’s average cost to mine Bitcoin in 2023 also decreased by 33% to $7,539 in 2023.

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