Bitcoin Miner Riot Warns of Profit Risks Due to Chip Shortage and Climate Regulations
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On February 23, popular Bitcoin miner Riot Platforms issued a cautionary statement regarding potential profitability challenges in its business operations. The company cited various factors, including global supply chain disruptions, chip shortages, and increasing regulatory scrutiny around climate change, as key threats to its operations.
Higher Bitcoin Mining Difficulty Requires Higher Hash Rate
The top Bitcoin miner resident in Texas shared this less-than-optimistic outlook on its ability to profit in 2024. In its annual investor K-10 report, Riot outlined 13 risk factors that could impact its business and financial operations.
One of these factors is the escalating hash rate required to mine a Bitcoin reward. The hash rate is the computing power necessary to solve the cryptographic puzzles that underlie every Bitcoin transaction. To cope with this, Bitcoin miners often deploy highly sophisticated Application Specific Integrated Chips (ASICs) to solve the puzzle and earn block rewards.
Riot Platforms noted that hash rates often grow exponentially as the price of Bitcoin increases. The network’s hash rate has surged due to the renewed interest in the foremost digital asset.
Riot Platforms has stated that if it fails to grow its current 12.4 exahash (EH) per second, its operations could be adversely impacted. The game plan to combat this is acquiring new and more efficient ASIC miners to boost their capacity to mine Bitcoins successfully.
Another factor the annual report considers is the global supply chain issue prompted by the Covid-19 pandemic. With several countries recovering from the lockdown, the global supply chain has changed.
This has resulted in a constrained supply of semiconductors needed to produce highly specialized ASIC machines. With constrained semiconductor supply, Riot Platforms claimed that several mining firms have been forced to pay premium prices to access the few ASICs available in the market.
Besides limited ASIC miner access, the company’s growth has been influenced by limited access to essential infrastructures like electricity distribution and construction materials.
Riot Platforms is one of many Bitcoin mining firms operating in the US. The company boasts a massive lineup of 112,944 Bitcoin miners. In 2023, Riot earned 6,626 in Bitcoin as profit (worth $341 million at current rates) from its mining operations. This figure represents a 19.3% increase from the 5,554 Bitcoins mined in 2022.
Riot Platforms Reports Full Year 2023 Financial Results, Current Operational and Financial Highlights.
$280.7 Million in Total Revenue, 6,626 Bitcoin Produced, and Record Hash Rate Capacity of 12.4 EH/s.
Read the full press release here: https://t.co/SeUytqm5ek. pic.twitter.com/Gr35dX8GmW
— Riot Platforms, Inc. (@RiotPlatforms) February 22, 2024
The Bitcoin miner also noted that its average cost to mine 1 BTC has dropped to $7,539 as of 2023.
Crypto Regulatory Scrutiny And Climate Change Concerns
Despite its increased output, Riot Platforms has highlighted the escalating scrutiny from government stakeholders regarding the environmental impact of its operations as a significant obstacle.
According to the Texas-based miner, changing expectations on its environmental, societal, and governance (ESG) practices and climate impacts could incur huge costs.
The Bitcoin miner elaborated that new legislation and increased regulation concerning climate change could impose significant costs on them and their suppliers. This includes costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs associated with compliance with such regulations.
For context, stringent regulatory oversights on crypto mining practices are being discussed in the US. The US Energy Information Administration (EIA) has created a survey targeted at crypto mining firms.
The survey, meant to gauge crypto mining firms’ energy needs, does not explicitly state whether the gathered data would be deployed in future regulatory actions. Nonetheless, it brings to mind that crypto mining is now a focal point for US government agencies.
Riot Platforms stated that strict regulatory oversight of its business ecosystem could see it lose any form of competitive advantage it has over its peers in other regions.
Regarding the possible implications of the EIA survey, Riot Platforms’ Head of Public Policy, Brian Morgenstern, stated that it is more than a cursory look into the industry.
“They’re trying to hand you the rope that they want to use to hang you later.”
The EIA survey is not just a survey. It’s a political weapon designed to strangle US Bitcoin miners.
I break down the motivations behind the EIA audit in a new podcast with @stephanlivera pic.twitter.com/u16lvsAMpX
— Brian Morgenstern (@MorgensternNJ) February 22, 2024
Morgenstern said in a podcast that the EIA survey is a weapon by regulators designed to strangle US Bitcoin miners.
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