Why Riot Blockchain Stock Soared 75% Higher in July

What happened

Shares in cryptocurrency mining company Riot Blockchain (RIOT 4.77%) surged 74.7% higher in July, according to data provided by S&P Global Market Intelligence. The market return was due to the recovery price of Bitcoin (BTC 1.23%), which was up almost 18% during the month. Riot Blockchain provided a business update early in the month and has already released its July report. Both reports are worth seeing here.

So what

On July 6, Riot Blockchain provided a business update for June operations. And on 3 August, the company did the same for the July operation. When it comes to Bitcoin mining, the results for these two months couldn’t be more different. In June, it mined 421 Bitcoins, a 73% increase compared to June 2021. But in July, it mined only 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, those machines were shut down for a good portion of July, causing a drop in production.

Riot Blockchain has built up its mining operation in Texas. However, the power grid is stressed in the Lone Star State, and it’s even more stressed in the hot month of July. For this reason, Riot Blockchain voluntarily shut down its mining machines part of the time to support the network. And management said this led to a 21% drop in productivity.

On the one hand, Riot Blockchain’s source of income is Bitcoin. Therefore, it is not ideal to see a decrease in productivity. On the other hand, electricity is expensive, and the company saves money by not extracting during peak hours. Furthermore, management says they get credit for voluntarily shutting down machines, and that they received over $9 million in benefits for doing so. This is more than what it would have otherwise earned from mining Bitcoin, which seems like an unwise 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.

What now

With the stock down more than 80% from its 52-week high and with an era of cheap debt coming to an end, Riot Blockchain continued to sell off a chunk of Bitcoin in July, a trend that started back in March. In June, it sold 71% of its newly mined Bitcoin, and it sold 86% in July. In other words, Riot Blockchain increasingly funds operations through Bitcoin sales, not through financing.

Riot Blockchain still has nearly 6,700 Bitcoins, worth over $150 million at today’s price. Considering that the company’s market cap is only $1 billion as of this writing, Riot Blockchain stock will likely continue to move in line with Bitcoin’s moves. Therefore, to predict where Riot Blockchain stock is headed next, you need to be right about the future price of Bitcoin.