Bitcoin mining company Riot Platforms stated in its latest annual report that ongoing chip shortages, increasing computational power demands, and the deepening climate-friendly agenda in the United States may potentially impact its balance sheet.
Global chip shortage may affect mining business profitability
In the annual 10-K filing submitted on February 23, Riot emphasized over 13 key risks that may affect its future Bitcoin mining profitability, with one being the continuous global chip crisis as only a few manufacturers can produce the “highly specialized” ASIC chips it relies on.
Riot wrote, “The ongoing global supply chain crisis coupled with increasing demand for computer chips has resulted in a semiconductor shortage.” Until the chip shortage crisis is resolved, the company anticipates continuing to incur costs “above normal” to acquire and install mining machines.
However, Riot pointed out that even with ASIC mining machines, they may still face “design flaws.” The company stated that in the process of attempting to adjust mining equipment to adapt to “immersive cooling” environments, they have encountered complex software and firmware issues in the past, which may also arise in the future.
Other risks
Riot also mentioned that the “increasingly fierce industry competition” brings risks, implying that the company needs to continue increasing computational power in line with the global hash rate to maintain its market share. At the same time, the company stated that Bitcoin faces “significant scalability barriers” that may hinder its widespread acceptance as a means of payment.
Riot wrote, “The demand for Bitcoin may stagnate or decrease”, which could negatively impact the price of Bitcoin, thereby weakening Riot’s balance sheet. Additionally, Riot warned that if the price of Bitcoin rises proportionally after the upcoming halving event in the first half of this year, the company’s revenue from mining operations will decrease, potentially significantly affecting its operational performance and financial condition.
Riot also mentioned that the increasing support for climate change agendas by the U.S. government and the Texas government may pose challenges. The company believes that if subjected to stricter regulations than their peers in other regions, Riot may lose its competitive advantage.
Riot wrote:
The “U.S. Energy Information Administration” (EIA), a branch of the U.S. Department of Energy, announced at the end of January
to investigate the electricity consumption of domestic cryptocurrency mining companies, but this move was opposed by Riot and the Texas Blockchain Council (TBC) and led to a lawsuit. Recently, a court issued a temporary restraining order (TRO) to prohibit the EIA from requiring cryptocurrency miners to respond to the investigation and from sharing any data obtained from the investigation.