Will Bitcoin Halving Put Mining Firms Out of Business?

The crypto landscape is set for a seismic shift as Bitcoin halves in the coming year of 2024, throwing uncertainty at mining enterprises like Riot Platform.

Once valued at $3 billion, Riot now sits at a market cap of $2.1 billion. The looming halving event raises a critical question: Will it lead Riot to a fate similar to Core Scientific's demise?

Rising business costs

Bitcoin's halving, which cuts Bitcoin mining rewards in half, is set to dramatically change the economics of the sector. Average cost of $30,000 to $60,000 per bitcoin is expected to double or mining revenue to be cut in half.

Read more: Bitcoin half-cycles and investment strategies: What you need to know

According to Seeking Alpha, with bitcoin at an all-time high of $69,000, this change could be difficult for many, including Riot, given its dire cost structure.

Ryot's primary expenses include electricity, hosting, depreciation, sales, and general and administrative expenses. In particular, the decline in equipment prices is the biggest of these, a trend that is strengthening.

Riot's short-term expansion, adding $416 million worth of equipment at 26 EH/s, and a long-term goal of achieving 100 EH/s will drive this cost up. Post-halving, this means that the price per Bitcoin will double.

Riot's cost structure breakdown is illuminating. The company's total business value in bitcoins increased, from $44,400 in Q3 2023 to $110,000 in Q4 2021. This trend and the semi-event could triple Riot's trading costs to $183,000 per unsustainable Bitcoin.

Can Riot Survive Bitcoin's Decline?

The situation becomes more serious considering the market performance of Bitcoin.

Seeking Alpha suggests that a bull market could see Bitcoin reach $90,000. However, this falls short of covering Riot's high costs.

“We expect Bitcoin to only reach $90,000 in the coming bull market (which would be $66,000 during an average bull market). Unless Bitcoin surprises above $180,000, we do not expect dividend income.” [Riot’s] shareholders,” said a Seeking Alpha analyst.

The company is faced with a dire situation: either continue with shareholder supplements to fund operations or face the reality that the business model is unviable.

This situation is not only a bear market, but also dramatically reflects the collapse of Core Scientific due to unsustainable mining costs. Core Scientific's bankruptcy filing in December 2022, will serve as a cautionary tale of falling bitcoin prices, rising electricity bills, and rising network hash rates.

Riot's share price, which traded at $10.47 on Wednesday and is down 44% since its December high, reflects investor concern.

Read more: Top 12 Crypto Companies to Watch in 2024

The post-halving scenario is perhaps beyond the most optimistic Bitcoin price predictions of devaluation costs per bitcoin, with Riot's business model looking increasingly worrisome.

With Bitcoin about to halve, Riot is at a critical juncture. Will it steer the turbulent waters of rising prices and market volatility, or will it, like Core Scientific, succumb to the harsh realities of the evolving crypto-mining landscape?