Bitcoin mining giant Riot Platforms (NASDAQ: RIOT) recently published a report outlining the potential risks of being exposed to cryptocurrency companies plagued with instability. With several cryptocurrency platforms collapsing in recent years, distrust in the nascent crypto sector is at an all-time high.
According to Riot’s latest annual report, several risks have the potential to impact the company and disrupt its Bitcoin mining operations. These include a potential reduction in on-chain transition fees, problems in the wider cryptocurrency economy and an anticipated Bitcoin halving event in April. According to Riot, the halving event is particularly risky because it can potentially reduce mining rewards as a top concern for achieving profitability in the future.
Several collapses within the crypto sector have increased distrust in digital currencies such as Bitcoin, led to more regulatory scrutiny of cryptocurrencies and resulted in a significant reduction in Bitcoin’s value. Riot’s yearly report noted that the April 2020 bitcoin halving, a process that cuts block rewards by 50%, could threaten the Bitcoin miner’s profitability as well as its ability to attract data center clients at the institutional level.
Even though historical data shows that prices tend to go up during Bitcoin halvings, Riot Platforms says there’s no guarantee that the upcoming halving, as well as future halvings, will have enough of a positive impact on Bitcoin prices to make up for the loss of 50% of mining rewards.
Riot cautions that if future Bitcoin halving events aren’t accompanied by a proportionate and corresponding increase in Bitcoin prices, its Bitcoin mining revenue will drop. The result would be a notable negative effect on the results of Riot’s bitcoin mining efforts and its overall financial condition, the Bitcoin miner says.
April’s Bitcoin halving will be the fourth halving event since the cryptocurrency launched. Over the years, prior halving events have consistently reduced Bitcoin mining rewards as miners increasingly see on-chain transaction fees as a critical incentive. Unfortunately, an increase in fees may lower Bitcoin’s appeal as a payment option and could even contribute to a drop in Bitcoin demand and prices. Riot notes that a fall in Bitcoin demand could cause future Bitcoin prices to drop as well, ultimately resulting in a material and adverse impact on its securities.
Additionally, the Bitcoin miner said that it will have to work on mitigating issues such as slow transaction settlements and high Bitcoin fees because they have the potential to hinder the wider adoption of the cryptocurrency.
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