Riot Platforms’ $84M loss last quarter was linked here yesterday, but one thing in the linked article caught my attention.
“The average direct cost to mine Bitcoin, inclusive of power credits, was $25,327 in the quarter, as compared to $5,734 per Bitcoin for the same three-month period in 2023,” Riot said.
$25,327, let alone $5,734, are way below earlier mining cost estimates I have seen.
I dug a bit deeper and quickly discovered this is a sleight of hand. The word “direct” is doing a lot of heavy lifting there. No doubt, Riot wants to show off impressive numbers to investors.
If we look at the report itself, Riot stated they mined 844 bitcoins during the last quarter. As “cost of mining”, they’ve reported $35,275,000: this consists mostly of the electricity cost. This gives $41,795 per BTC.
The difference comes out to about $13,9M, which (surprise surprise!) matches the power curtailment credits they received, i.e. what utility companies paid them when they shut off the mining ASICs during electricity droughts.
And I’m not done yet.
The above numbers still ignore that the ASICs become worthless as technology improves and more efficient models become available. They would hold only if the ASICs were free, which they very much aren’t.
Riot is legally required to disclose this as well, and they do, as “depreciation and amortization” in the report. That clocked in at $37,326,000 in the last quarter. (This is assuming Riot is even using correct depreciation periods in the first place: AFAIK, Bitcoin miners have a tendency to use hopelessly long depreciation periods to make the numbers look better.)
All this gives a total mining cost of $69,551 per BTC, or $86,020 if we remove the power curtailment credits too.
The “direct mining cost” of $25,327 makes Riot looks like a very healthy company that’s practically doubling money with its business. But the real figure of $69,551 shows the business as seriously unhealthy: they’re only generating profit when Bitcoin price is above $70K, where it has only ever been briefly this year. And as every miner (including Riot themselves) brings more capacity online, the mining difficulty increases and the cost per BTC rises even higher. And AFAIK Riot isn’t an exception and nearly all miners have about the same costs.
Miners’ only hope is BTC price rising reliably above $80K or so. Good luck with that. It’s significantly above the fucking all-time high, and BTC would need to maintain it most of the time, not just sporadically.
Otherwise, the miners will start facing the music.
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