For the past few months, there has been a steady drumbeat of bad news about Bitcoin (BTC -1.96%) mining stocks. With the price of Bitcoin no longer on the march upward, Bitcoin mining companies are struggling to turn a profit. So it's perhaps no surprise that during the Lightning Round of the Oct. 31 Mad Money show, CNBC host Jim Cramer was unequivocal in his decision not to recommend Riot Blockchain (RIOT -9.78%)

As Cramer pointed out, Riot Blockchain is not making money right now, and he doesn't invest in companies that don't make money. Fair enough. When Riot Blockchain last reported earnings in August, the company posted a loss and failed to meet Wall Street consensus numbers. Despite these setbacks, the company still plans to double the scope of its Bitcoin mining operations by the first quarter of 2023. So is Jim Cramer right about Riot Blockchain or not?

The relationship between Riot and Bitcoin

It's important to remember that Riot Blockchain makes money when Bitcoin is rising in price, and struggles to make money when Bitcoin is falling in price. The key reason why Riot Blockchain turned in such an abysmal performance in Q2 2022 was because that time period coincided with a steep fall in the price of Bitcoin and the onset of "crypto winter." Suddenly, every Bitcoin the company mined was worth less in value. When you take into account the massive amount of power needed to run all of the company's Bitcoin mining rigs, it simply became far less profitable to mine Bitcoin.

Bitcoin hit by lightning.

Image source: Getty Images.

It will likely be much the same story when Riot Blockchain reports earnings later this month. We're already starting to see a preview of what to expect with Bitcoin mining stocks across the board, and it's not pretty. These companies are so highly leveraged to the price of Bitcoin that everything they do loses value when Bitcoin falls.

For example, in Q2 2022, Riot Blockchain reported a huge $100 million impairment charge for the value of Bitcoin it holds on its balance sheet. It also reported a huge $349 million non-cash write-down in value of two Bitcoin mining company acquisitions. In this regard, Cramer is absolutely correct: You don't buy Bitcoin mining stocks in the middle of a bear market.

Where is Bitcoin headed?

All of this assumes Bitcoin will either fall in value or continue to trade sideways at the $20,000 level for the remainder of 2022 and the first half of 2023. But what if we begin to see a breakout in the value of Bitcoin? In that case, it might be worth challenging some of Cramer's assumptions.

The big thing that I'm watching right now is Riot Blockchain's super high-risk bet on the future price of Bitcoin. By January 2023, the company is scheduled to double the scale of its Bitcoin mining operations. In addition, the company has said it is still on the lookout for new acquisitions of smaller Bitcoin miners. This added mining capacity will make the company even more highly leveraged to the price of Bitcoin. If the price of Bitcoin drops, this would result in absolute carnage for Riot Blockchain's shares. But if the price of Bitcoin rises? Well, you might be sitting on a huge new source of future profits.

For now, I'm with Cramer. You simply don't buy Bitcoin mining stocks when the price of Bitcoin is falling. So let Riot Blockchain report earnings this month, turn in some disappointing numbers, and watch the price of Riot Blockchain fall even further as investors give up on Bitcoin mining stocks entirely. That's when you might be able to scoop up Riot Blockchain on the cheap. If you believe that Bitcoin is going stratospheric next year, you'd be able to buy up a super-cheap Bitcoin mining stock at exactly the right time to profit from a Bitcoin bounce in 2023.