The risk factor disclosures in annual reports from Bitcoin mining firms continue to revolve around chip shortages and potential climate-focused regulations as they prepare for the upcoming Bitcoin halving.
Riot Platforms, one of the first firms to release its 2023 annual report, highlighted over 13 ongoing risks to its Bitcoin mining profitability in its 10-K filing on Feb. 23. These risks remained largely unchanged from the previous year.
Riot expressed concern about the global supply chain crisis and increased demand for computer chips, which has resulted in a shortage of semiconductors. This shortage could have a long-term impact on its mining operations.
Similar risks have been mentioned in annual reports from other Bitcoin miners in the past. CleanSpark, a U.S. Bitcoin miner, cited potential cryptocurrency hardware disruption and difficulties in obtaining new hardware in their 2023 10-K filing. TeraWulf also listed supply chain constraints as a risk factor.
Riot also stated that it would continue to pay higher-than-usual costs to acquire and install mining machines until the chip shortage crisis is resolved.
Although JPMorgan stated in April last year that the chip shortage was almost over, they expected some shortages to persist for certain types of chips with higher computing power until 2023 and 2024.
Despite these risks, mining firms have not halted their acquisition of miners or expansion plans in preparation for the halving. Riot, for instance, 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.
Riot has also highlighted risks related to the increasingly competitive nature of the industry, emphasizing the need to expand its hash rate to maintain its market share as the global hash rate increases. CleanSpark has also cited the need to grow its hash rate as a risk factor in its annual report.
In addition to these industry-related risks, firms have also acknowledged risks associated with Bitcoin itself. Riot mentioned significant scaling obstacles that could hinder Bitcoin’s widespread adoption as a means of payment. Marathon Digital noted protocol risks that may arise from a 51% attack on the Bitcoin network, as well as the possibility of miners losing the incentive to mine with each halving if Bitcoin’s price or transaction fees rise.
Furthermore, an increasingly pro-climate change agenda in the Texas and United States governments could pose challenges for Bitcoin mining firms. Riot highlighted this as a potential risk, while CleanSpark disclosed increased scrutiny concerning environmental social governance practices in its operations.
Riot recently secured a favorable ruling in a lawsuit against U.S. energy officials alongside the Texas Blockchain Council, protecting cryptocurrency miners from allegedly invasive data collection.
Despite these risks, Riot managed to increase 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 also decreased by 33% to $7,539 in 2023.