Shares of Riot Platforms (RIOT -1.49%) rose by 23.3% in December 2023, according to data from S&P Global Market Intelligence. The crypto-mining specialist rode higher as Bitcoin (BTC -2.34%) continued to rise, adding 12.7% to the largest cryptocurrency's value last month. Moreover, Riot produced 552 Bitcoin tokens in November, showing a robust increase year over year and an even sharper uptick from slower operations in the late summer months.
Key drivers behind Bitcoin's recent market gains (aka Riot's rocket fuel)
Bitcoin's recent gains relied on a couple of separate catalysts.
The crypto winter that started in 2021 is following a predictable tick-tock pattern in preparation for this spring's halving of rewards for crypto miners. With fewer Bitcoins issued in response to the same power-hungry mining activity, the economics of Bitcoin mining won't work unless prices go up. And without miners, the Bitcoin blockchain network grinds to a halt due to a lack of properly processed transactions. So Bitcoin's operating future depends on a price spike approximately every four years, and the next rewards cut is scheduled for late April 2024.
On the other side of the supply-and-demand equation, people are paying closer attention to Bitcoin as a secure digital system for payments and value storage. Exchange-traded funds (ETFs) directly based on the current Bitcoin price are not yet available, but the Securities and Exchange Commission (SEC) may soon approve the first Bitcoin ETFs. If so, these powerful investment vehicles would support massive inflows of real-world currency into the Bitcoin space, driving the cryptocurrency's price higher.
Riot Platforms (formerly known as Riot Blockchain) benefits from Bitcoin's price surge since it owned 7,362 tokens at the end of 2023, produced an average of 552 coins per month last year, and is investing in more crypto-mining hardware.
Riot Platforms' strategic position in the mining landscape
The company owns one of North America's largest Bitcoin mining facilities, and its location in central Texas gives Riot business opportunities that most crypto miners can't match. Riot Platforms collected $71.6 million in power credits last year as it lowered its mining activity during the state's power crisis last summer.
Riot plans to more than double its Bitcoin-mining hash rate in 2024 from 12 to 28 exahashes (quintillion calculations) per second. That's enough to keep the Bitcoin production constant after the halving of rewards. Its flexible-power policy could also be useful if Texas experiences another hot summer.
With a second production facility under construction in Central Texas, Riot is setting itself up for larger power-saving gains while expanding its Bitcoin production capacity even further. It should be noted that Riot's new mining hardware was designed by a Chinese company but dodges international policy tensions by manufacturing the chips in Pennsylvania.
Moreover, Riot sports a squeaky-clean balance sheet with $290 million in dollar-based cash reserves, a Bitcoin pool worth $346 million at today's prices, and no debt to speak of.
So this isn't the riskiest cryptocurrency investment out there, but you should still be careful with it since the stock has gained a hair-raising 280% in 52 weeks. This red-hot ticker looks too hot for comfort right now even if Bitcoin soars in 2024.
