Bitcoin (CRYPTO: BTC) has been enjoying a strong year, with the digital currency hitting all-time highs in 2024. But that bullishness hasn't been paying off for crypto mining stock Riot Platforms (RIOT 2.42%), whose shares are down 45% since the start of the year. Now nowhere near its 52-week high of $20.65, the excitement around the stock appears to be fading.
But could the upcoming Bitcoin halving event help rally the crypto stock? While it will reduce the rewards for Bitcoin mining companies, the net effect could be a positive one for Riot Platforms.
A halving event normally has a positive impact on Bitcoin's price
In a Bitcoin halving event, mining companies will see the rewards they receive get cut in half. That's bad news for Riot Platforms because instead of receiving 6.25 bitcoins per block (the current rate), miners will only receive 3.125. The next Bitcoin halving event is expected to take place around April 19.
The good news for Riot Platforms and other miners is that historically, the price of Bitcoin has risen following a halving event. Should there be another increase in price this time around, that would offset the decline in mining rewards. The key question is how high Bitcoin might go following the halving event.
Riot Platforms' improved infrastructure could also lessen the blow
Bitcoin halving events happen roughly every four years, so they don't come as a surprise to Bitcoin mining companies. That gives them plenty of time to prepare and scale so that they can become more efficient. And by boosting its capacity to mine more Bitcoin by improving its hash rate, Riot can minimize the negative impact that halving events have on its operations.
As of the end of last year, Riot's hash rate was 12.4 exahashes per second (EH/s). But by the end of the current year, it expects that rate to rise to 31.5 EH/s. The higher hash rate doesn't guarantee its production will increase accordingly, but it can increase the probability that Riot mines more blocks, and thus, generates more revenue.
Less efficient companies may not be able to compete on the same scale and end up winding down their operations. By being one of the larger mining companies out there with a more efficient operation, Riot Platforms could come out a winner when all is said and done this year, benefiting from a more efficient operation and a potentially higher price of Bitcoin.
This isn't a risk-free investment, however
A big reason investors have been feeling bearish about Riot, however, is that its latest earnings numbers weren't that great. The company released earnings in February and revenue for 2023 grew by 8% to $280.7 million but the company still incurred a net loss of $49.5 million. And that lack of profitability combined with its pursuit of growth and scale means that there's a significant need for cash.
A big problem for investors in the past has been that Riot Platforms has often resorted to stock offerings to raise money, which is dilutive and bad news for the stock price.
RIOT Shares Outstanding data by YCharts
Riot may benefit from a boost following the Bitcoin halving event as it puts more spotlight on mining stocks, but the risk is that without a stronger financial performance, it could prove to be a temporary rally at best.
Should you buy Riot Platforms stock?
Riot Platforms is one of the more notable Bitcoin mining stocks to invest in today. But with an unprofitable business and a need to scale and be more efficient, it could be a while before this company can demonstrate to investors it has a viable and sustainable business.
For now, this is a stock investors are better off keeping an eye on but not investing in just yet. The company needs much stronger fundamentals before it can be anything more than a speculative investment.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
