Send me real-time posts from this site at my email
Motley Fool

Why Investors Dumped Riot Blockchain Stock Today

What happened

Shares of bitcoin-mining company Riot Blockchain (NASDAQ: RIOT) continued their decline on Thursday because the price of bitcoin keeps falling. As of 3 p.m. EST, Riot Blockchain stock was down 10%. And over the past 24 hours, the price of bitcoin has fallen 8%, according to CoinDesk.

So what

Riot Blockchain mines bitcoin to generate revenue. By providing its own computing power to the bitcoin blockchain network, transactions are processed and the whole system functions. Of course, if your business is paid in bitcoin tokens, it's not good when the price of bitcoin goes down. That's why investors are dumping Riot Blockchain stock today.

Image source: Getty Images.

Although Riot Blockchain stock is now down around 30% from previous highs, I don't think long-term shareholders are complaining. The stock is still up over 1,200% over the past year, crushing the performance of bitcoin and the stock market.

RIOT data by YCharts

Now what

Earlier this week, Riot Blockchain issued a press release that I believe is a timely reminder for any investor with intentions of holding for the long term. The company had previously announced that it ordered new equipment. But it finally received and deployed 2,500 Bitmain S19 Pro Antminers this week.

Combined with what it already had, Riot Blockchain now has 9,540 Antminers mining bitcoin. But it doesn't stop there. The company intends to have 37,640 Bitmain Antminers operational by October. Now, mining power is measured in something called a hashrate, and the company expects to have a hashrate of 3.8 exahashes per second (EH/s) once this equipment is fully running.

It's not cheap. The 2,500 Antminers deployed this week cost Riot Blockchain $6.1 million. It may seem like good use of capital. But a greater hashrate for the company doesn't necessarily mean it will be able to mine more bitcoin. For example, if the total hashrate of the bitcoin network rises faster than Riot Blockchain's hashrate, then it will be getting smaller bitcoin payouts. And indeed, the total hashrate of the bitcoin network is rising fast -- up around 40% over the past year, according to Blockchain.com.

As the price of bitcoin goes up (as it has over the past several months), more miners are attracted to the network, causing the total hashrate to rise. Riot Blockchain is increasing its power to keep pace. This is a constant reality for bitcoin-mining operations when bitcoin is going up. But then when bitcoin is going down, it's possible for these companies to operate at a loss. It feels like a lose-lose situation.

For this reason, it's hard for Riot Blockchain to create long-term shareholder value. This will be true going forward and one of the reasons why I believe there are better cryptocurrency stocks for long-term investors interested in this space.

10 stocks we like better than Riot Blockchain, Inc
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Riot Blockchain, Inc wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 20, 2020

Jon Quast has no position in any of the stocks mentioned. Jon Quast owns bitcoin tokens. The Motley Fool has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue