Article Rewrite:
Disclaimer: This article has been revised to reflect that risk disclosures are a standard component of annual report filings and that the risks mentioned can be found in other Bitcoin mining companies and previous annual reports.
As the Bitcoin halving approaches, chip shortages and potential climate-related regulations continue to be prominent concerns for Bitcoin mining firms, as indicated in their risk factor disclosures.
Riot Platforms, one of the first companies to release its 2023 annual report this year, outlined over 13 ongoing risks to its Bitcoin mining profitability in its 10-K filing on February 23. Although there were some changes from the previous year, most of the risks remained the same.
Riot stated, “The ongoing global supply chain crisis, combined with increased demand for computer chips, has resulted in a shortage of semiconductors, which could have a long-term impact on our mining operations.”
Other Bitcoin miners have also highlighted similar risks in their annual reports in the past. Last year, U.S.-based Bitcoin miner CleanSpark mentioned potential “cryptocurrency hardware disruption” and the potential difficulties in obtaining new hardware in their 2023 10-K filing. TeraWulf also listed supply chain constraints as a risk factor.
Riot also mentioned that it will continue to incur “higher than usual” costs to acquire and install mining machines until the chip shortage crisis is resolved.
However, in April of last year, JPMorgan stated that the chip shortage is “almost over,” although some shortages might persist for certain types of chips with higher computing power until 2023 and 2024.
Despite these challenges, companies are still acquiring miners and expanding their operations in preparation for the halving. Riot, for example, agreed to purchase 66,560 miners worth $291 million from manufacturer MicroBT in December, making it the largest order of hash rate in the company’s history.
Marathon Digital also made a significant acquisition, agreeing to pay $178.6 million for two mining data centers with a total capacity of 390 megawatts.
In addition to chip shortages and competition, Riot also highlighted the risks associated with an increasingly competitive industry and the need to expand its hash rate to maintain its market share. CleanSpark also cited the need to grow its hash rate as a risk factor in its annual report.
Bitcoin itself presents various risks as well. Riot mentioned that Bitcoin faces significant scaling obstacles that could hinder its widespread adoption as a means of payment. Marathon Digital acknowledged the protocol risks that may arise from a 51% attack on the Bitcoin network, as well as the potential loss of mining incentives with each halving if Bitcoin’s price or transaction fees increase.
Another potential challenge for these firms is the pro-climate change agenda in the Texas and United States governments. Riot expressed concerns about the impact of this agenda on their operations, while CleanSpark acknowledged increased scrutiny regarding environmental social governance practices.
Riot and the Texas Blockchain Council (TBC) recently obtained a favorable ruling from a United States District judge in a lawsuit against several U.S. energy officials. The lawsuit alleged invasive data collection from cryptocurrency miners.
In 2023, Riot increased its Bitcoin production by 19%, mining a total of 6,626 BTC, valued at $341.4 million. The average cost to mine Bitcoin for the year also decreased by 33% to $7,539.
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.