Disclaimer: The following article has been revised to indicate that risk disclosures are a standard component of annual report filings and that the risks mentioned are consistent with those found in other Bitcoin mining companies and previous annual reports.
As Bitcoin mining firms prepare for the upcoming Bitcoin halving, risk factors such as chip shortages and potential climate-focused regulations continue to be prominent themes in their disclosures.
Riot Platforms, one of the first companies to release its 2023 annual report this year, highlighted over 13 ongoing risks to its Bitcoin mining profitability in its 10-K filing submitted on February 23. However, these risks remained largely unchanged from the previous year.
Riot expressed concerns about the ongoing global supply chain crisis and the increased demand for computer chips, which has resulted in a shortage of semiconductors. The company acknowledged that this shortage could have long-term implications for its mining operations.
Similar risks have been identified by other Bitcoin miners in their respective annual reports in the past. US-based Bitcoin miner CleanSpark, in their 2023 10-K filing, cited potential disruptions to cryptocurrency hardware and difficulties in obtaining new hardware as risks. TeraWulf also identified supply chain constraints as a risk factor.
Riot further stated that it would continue to face higher costs in acquiring and installing mining machines until the chip shortage crisis is resolved.
However, JPMorgan reported in April of last year that the chip shortage was nearing its end, although certain types of chips with higher computing power might still experience shortages until 2023 and 2024.
Despite these challenges, mining firms have not halted their acquisition of miners or expansion plans in preparation for the halving.
Riot, for example, agreed to purchase 66,560 miners worth $291 million from manufacturer MicroBT in December, marking the largest order of hash rate in the company’s history. Marathon Digital also entered into an agreement to acquire two mining data centers from Generate Capital for $178.6 million, with a total capacity of 390 megawatts.
Riot has also identified risks associated with an increasingly competitive industry, emphasizing the need to continuously increase its hash rate to maintain its market share as the global hash rate grows. CleanSpark similarly recognized the need for hash rate growth as a risk factor in its previous annual report.
Companies have also expressed various concerns regarding Bitcoin itself. Riot highlighted significant scaling obstacles that could hinder Bitcoin’s widespread adoption as a means of payment. Marathon Digital acknowledged protocol risks that could arise from a 51% attack on the Bitcoin network and noted that miners might lose their incentive to mine with each halving if Bitcoin’s price or transaction fees increase.
Furthermore, Riot pointed out the potential challenges presented by an increasingly pro-climate change agenda in the Texas and United States governments. CleanSpark also mentioned facing increased scrutiny regarding environmental social governance practices in its operations.
Riot recently obtained a favorable ruling from a United States District judge in a lawsuit against several U.S. energy officials, where they alleged invasive data collection from cryptocurrency miners.
In 2023, Riot increased its Bitcoin production by 19%, mining a total of 6,626 BTC, which is valued at $341.4 million at current prices. The company also reduced its average cost to mine Bitcoin by 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.