Riot Blockchain: Not Best In Class (RIOT)

The cryptocurrency market has been distressed hitting a local bottom of ~33K so far. Due to the operational structure, Riot Blockchain (RIOT) is at higher risk of financial issues during a prolonged downturn compared to competitors. At this time, I do not believe cryptocurrency is entering a ‘winter’, but it is still a real possibility. RIOT is still overvalued relative to competition, but due to the devalued market it will rise with the market.

Crypto Market Outlook

Unlike many other investors I do not believe the crypto winter is coming. Two major factors in support of an upcoming crypto winter are: the 4-year cycle theory, and interest rate hikes.

The basis of the 4-year cycle which would lead to the supposed 4 year cycle is flawed. The halvening does occur every 4 years, but that does not mean the price is fixed to a 4-year cycle. Yes, initially the amount of Bitcoin (BTC-USD) minted was significant but due to the previous halvenings less, and less are coming to market, therefore the resulting change of incoming supply is less influential each halvening.

Bitcoin has already surpassed 90% of total possible supply, and will hit 95% in 2026. Just over 1% supply inflation a year is not the main cause of price movement, shifting demands are exponentially more important.

The hawkish FED has incited fear into many market participants, but the fundamental effect should not be as significant as a 50% or greater drop. The larger effect interest rates have had on cryptocurrencies has been behavioral, and once the greater market relaxes cryptocurrencies should start to rise.

Risk and Reward

RIOT’s strategy emphasizes electrical capacity for growth. RIOT hosts third-party miners as well as housing their own miners.

Building excess hosting capacity to lease trades the risk of increasing CAPEX for the reward of variable lease income. Lease income is based on the amount of electricity…