Riot Platforms, other miners still see chip shortage, ESG regs as risks

Disclaimer: This article has been updated to reflect that risk disclosures are a standard part of annual report filings and that the risks highlighted can be seen across other Bitcoin mining firms and previous annual reports.

Chip shortages and potential climate-focused regulations have continued to appear as common themes to Bitcoin mining firm risk factor disclosures — as firms prepare for the upcoming Bitcoin halving.

Riot Platforms, one of the first to release its 2023 annual report this year, highlighted more than 13 continued risks to its Bitcoin mining profitability in its 10-K filing filed on Feb. 23 — though it was mostly unchanged from the previous year. 

“The ongoing global supply chain crisis, coupled with increased demand for computer chips, has created a shortfall of semiconductors,” Riot has said, which could impact its mining operations over the long term.”

Other Bitcoin miners have posted similar risks in their respective annual reports in the past.

U.S. Bitcoin miner CleanSpark last year cited potential “cryptocurrency hardware disruption” and possible difficulties obtaining new hardware in their 2023 10-K filing. TeraWulf also listed supply chain constraints as a risk factor.

Riot also said it will continue paying “higher than usual” costs to obtain and install the mining machines until the chip shortage crisis is resolved.

However, in April last year, JPMorgan said the chip shortage is “all but over” but expected some shortages could linger for certain types of chips through 2023 and 2024 for chips with higher computing power. 

This hasn’t stopped firms from acquiring miners or expanding in preparation for the halving.

Last year, Riot agreed to buy 66,560 miners, worth $291 million worth from manufacturer MicroBT in December. It was “the largest order of hash rate” in the company’s history, according to the firm’s CEO Jason Les.

In the same month, Marathon Digital agreed to pay $178.6 million for two mining data centers from Generate Capital, totaling 390 megawatts of capacity, with the transaction to be completed in early 2024.

Meanwhile, Riot has again highlighted risks stemming from an increasingly “competitive industry,” — meaning the company needs to continue growing its hash rate as the global hash rate increases in order to maintain its market share.

CleanSpark also cited the need to keep growing its hash rate as a risk factor in its annual report released last year.

Firms have also highlighted varying risks around Bitcoin itself. Riot said Bitcoin faces “significant scaling obstacles” that could hinder its ability to become a widely accepted means of payment.

In Marathon Digital’s last 10-K filing in 2023, it acknowledged protocol risks that may arise from a 51% attack on the Bitcoin network. It noted that miners may lose the incentive to mine with each halving should Bitcoin’s price or transaction fees rise.

Meanwhile, an increasingly pro-climate change agenda in the Texas and United States governments could present challenges for the firm, too, said Riot. 

CleanSpark also disclosed previously that it faces “increased scrutiny” concerning environmental social governance (ESG) practices in its operations.

Riot and the Texas Blockchain Council (TBC) recently secured a favorable ruling from a United States District judge in a lawsuit against several U.S. energy officials that sought allegedly invasive data collection from cryptocurrency miners.

Riot boosted its Bitcoin production by 19% in 2023, mining a total of 6,626 BTC, worth $341.4 million at current prices.

The firm’s average cost to mine Bitcoin for 2023 also decreased 33% to $7,539 in 2023.

Update (Feb. 27 at 12:21 am UTC): This article has been updated to include risk factors highlighted by other Bitcoin mining firms and Riot Platforms in the past.