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Why Riot Blockchain Stock Came Crashing Down Today

By Jon Quast - Jan 20, 2021 at 1:40PM

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The company is spending big on new equipment as it tries to keep pace with the rising hashrate of the bitcoin network.

What happened

Shares of Riot Blockchain (RIOT 2.55%) came crashing down on Wednesday, even though there was a lack of company-specific news to report. As of 12:30 p.m. EST, the stock was down 11%. The price of bitcoin is likely having some influence on the stock today. Furthermore, investors could be digesting news recently released from the company, even though it wasn't released today. 

So what

According to CoinDesk, the price of bitcoin has fallen 6% over the past 24 hours. Cryptocurrencies are volatile, so definitively explaining why bitcoin is down right now is just guesswork. However, it affects Riot Blockchain. To put it simply, the company provides computers to run the bitcoin blockchain network and, in return, it's paid in bitcoin tokens. But it periodically liquidates tokens to pay the bills. Hypothetically, if Riot Blockchain was to sell some bitcoin today, it would be getting 6% less than it would have just 24 hours ago. That's significant.

A frustrated man places his hands on his head while staring at his laptop screen.

Image source: Getty Images.

Yesterday, Riot Blockchain announced its new bitcoin-mining equipment has arrived. The company is hoping it will be operational this week, and the next shipment is expected later this week. It's unlikely this news would cause the stock to go down -- if anything, it's probably good news for Riot Blockchain shareholders.

By the end of this week, Riot Blockchain's mining power should be at 842 petahashes per second (PH/s). This is based on having 9,540 Antminers up and running. But it's scheduled to receive 28,000 more between now and October. By then, the company expects its hashrate to be at 3.8 exahashes per second (EH/s) -- 4.5 times more than what it will be by the end of this week.

Now what

The greater a bitcoin miner's hashrate, the more bitcoin it's capable of earning. But this is relative to the total hashrate of the bitcoin blockchain network. According to Blockchain.com, the total hashrate right now is around 150 million terahashes per second (TH/s), or 150 EH/s. The hashrate has gone up considerably over the last year, as the rising price of bitcoin entices more miners to either join the network or increase their power. And it's highly likely the total hashrate will go up even more.

So, on the one hand, it's good for Riot Blockchain to increase its mining power -- it helps it gain a larger bitcoin payout. However, as the overall hashrate rises, companies like Riot Blockchain have to keep spending money to keep pace. It can be an expensive business model and it's one reason why bitcoin-mining stocks like Riot Blockchain might not be the safest long-term investment.

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