Shares of cryptocurrency mining company Riot Blockchain (RIOT -3.46%) surged 74.7% higher in July, according to data provided by S&P Global Market Intelligence. Its market outperformance was due to the recovering price of Bitcoin (BTC 1.63%), which was up nearly 18% during the month. Riot Blockchain did give a business update early in the month and has already released its report for July. Both reports are worth looking at here.
On July 6, Riot Blockchain provided a business update for June operations. And on Aug. 3, the company did the same for July operations. When it comes to mining Bitcoin, the results for these two months couldn't have been more different. In June, it mined 421 Bitcoins, up 73% compared to June 2021. But in July, it mined just 318 Bitcoins, a 28% year-over-year decrease.
June's Bitcoin production was dramatically higher because Riot Blockchain has far more mining machines now than it did back in 2021. However, these machines were turned off for a good bit of July, leading to the drop in production.
Riot Blockchain has been building up its mining operations in Texas. However, the power grid is stressed in the Lone Star State, and it's even more stressed during the hot month of July. For this reason, Riot Blockchain voluntarily turned off its mining machines part of the time to support the grid. And management said this led to a 21% decrease in productivity.
On one hand, Riot Blockchain's revenue source is Bitcoin. Therefore, seeing a decline in productivity isn't ideal. On the other hand, electricity is expensive, and the company is saving money by not mining at peak hours. Moreover, management says it's getting credits for voluntarily turning machines off, and it racked up over $9 million in benefits for doing so. This is more than what it would have otherwise earned by mining Bitcoin, which seems like a no-brainer move to me.
To be clear, Riot Blockchain stock was up in July because Bitcoin was up. The stock was little moved when it reported these two business updates.
With its stock down more than 80% from its 52-week high and with the era of cheap debt coming to an end, Riot Blockchain continued selling a portion of its Bitcoin in July, a trend that began back in March. In June, it sold 71% of its newly mined Bitcoin, and it sold 86% in July. In other words, Riot Blockchain is increasingly funding operations through Bitcoin sales, not through financing.
Riot Blockchain still holds nearly 6,700 Bitcoins, worth over $150 million at their current price. Considering the company's market capitalization is only $1 billion as of this writing, Riot Blockchain stock will likely continue to move in accordance with Bitcoin's moves. Therefore, to predict where Riot Blockchain stock is headed next, you need to be right on the future price of Bitcoin.