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Why Riot Blockchain Stock Jumped 75% in July

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Why Riot Blockchain Stock Jumped 75% in July

What happened

Shares of a cryptocurrency mining company Riot Blockchain (RIOT 2.06%) jumped 74.7% in July, according to data provided by S&P Global Market Intelligence. Its outperformance on the market is explained by the recovery in the price of Bitcoin (BTC 1.93%), which rose almost 18% during the month. Riot Blockchain gave a trading update earlier this month and has already released its report for July. Both reports are worth reviewing here.

So what

On July 6, Riot Blockchain provided a trading update for June operations. And on August 3, the company did the same for July operations. When it comes to bitcoin mining, the results of these two months could not have been more different. In June, it mined 421 Bitcoins, up 73% from June 2021. But in July, it only mined 318 Bitcoins, down 28% year-over-year.

Bitcoin production in June was significantly higher as Riot Blockchain has many more mining machines now than in 2021. However, these machines were shut down for much of July resulting in lower production.

Riot Blockchain has expanded 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 has intentionally turned off its mining machines part of the time to support the network. And management said it resulted in a 21% drop in productivity.

On the one hand, Riot Blockchain’s source of income is Bitcoin. Therefore, seeing a decline in productivity is not ideal. On the other hand, electricity is expensive and the company saves money by not operating during peak hours. Additionally, management claims they get credit for voluntarily turning off the machines, and racked up over $9 million in profit for doing so. That’s more than he would otherwise have earned mining Bitcoin, which seems like a no-brainer to me.

To be clear, Riot Blockchain stock was up in July because Bitcoin was up. The title moved little when it announced these two commercial updates.

Now what

With its stock down more than 80% from its 52-week high and with the era of cheap debt ending, Riot Blockchain continued to sell off some of its Bitcoin in July, a trend that started in March. In June, he sold 71% of his newly mined Bitcoin and he sold 86% in July. In other words, Riot Blockchain is increasingly funding operations through Bitcoin sales, not funding.

Riot Blockchain still holds nearly 6,700 Bitcoins, worth over $150 million at their current price. Given the company market capitalization is only $1 billion at the time of this writing, Riot Blockchain’s stock will likely continue to move in line with Bitcoin’s moves. Therefore, to predict where Riot Blockchain stock is heading, you need to be right about the future price of Bitcoin.

Jon Quast has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

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