Why Riot Platforms Stock Was Up a Spectacular 356% Last Year | The Motley Fool

Shares of cryptocurrency mining company Riot Platforms (RIOT -1.21%) were up 356.3% in 2023, according to data provided by S&P Global Market Intelligence. The company mines and holds Bitcoin (BTC 0.68%), which for its part was up more than 150% during the year, providing a substantial tailwind to Riot stock.

The S&P 500 was up about 24% in 2023. So Riot benefited from both favorable stock market conditions and a bullish cryptocurrency market. However, as the chart shows, the movements of Riot stock deviated from the market and from Bitcoin in a couple of instances.

RIOT Chart

RIOT data by YCharts

The most prominent bump for Riot stock came in late June, when Riot announced that it was buying new mining equipment for a total consideration of $163 million. This new equipment totaled 7.6 exahashes per second (EH/s) of mining power.

Readers don’t necessarily need to understand what a hash rate is. But for perspective, Riot had 10.7 EH/s deployed at the time. Therefore, its purchase in June considerably increased its ability to mine Bitcoin, which is why Riot stock jumped on the news.

In December, Riot purchased an additional 18 EH/s for $290.5 million.

Much of Riot’s equipment has yet to be deployed — only 12.4 EH/s was deployed as of December. But the company could produce Bitcoin at an increased rate as new equipment comes online.

In the meantime, 2023 was a productive and lucrative year for Riot. It mined over 6,600 Bitcoins, sold most of them for $176 million, and holds over 7,000 Bitcoins on its balance sheet.

Why is Bitcoin booming?

Bitcoin is a digital currency with a known circulating supply. But the supply does go up. Miners process transactions and are paid with new Bitcoin, which is how supply increases. However, every four years, what miners are paid is reduced by 50%.

This is called Bitcoin halving. And Bitcoin is expected to reach its next halving in April 2024.

The price of Bitcoin has always increased in the year prior to, the year of, and the year after past halving events. Therefore, many investors expected a bull run for Bitcoin about now. And it’s why companies such as Riot were working hard to secure their piece of the pie in 2023.

Will Riot stock do well in 2024?

Riot has historically funded much of its growth by issuing new shares. The outstanding share count has consequently more than doubled in only the last three years — not good for shareholder value, all other things being equal.

RIOT Average Diluted Shares Outstanding (Quarterly) Chart

RIOT Average Diluted Shares Outstanding (Quarterly) data by YCharts

This dynamic makes Riot a more complicated stock to own over the long term. If Bitcoin rises by an extraordinary amount, the stock will likely perform well. However, barring an outsized jump in Bitcoin’s price, it could struggle to overcome dilution, leaving shareholders with lackluster returns.

Investors will simply need to adequately assess the risk to determine if Riot stock could still make sense for them.

Jon Quast has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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