Riot Blockchain Vs Bitcoin: Which Is Best?

Riot Blockchain Inc (NASDAQ:RIOT) gained over 1,000 percent from December 2020, and it’s directly tied to the price of bitcoin. That’s because the company is a bitcoin mining company, so the famed apex cryptocurrency is the meat and potatoes of its business.

This has some investors wondering why invest in Riot Blockchain vs Bitcoin?

Answering this question is as simple as discerning the difference between whether you want to own the currency itself or a company that creates it. Of course, it goes a bit deeper than that because both bitcoin and its miners have a history going back over a decade.

We check the digital ledger to determine the best way to gain exposure to crypto assets.

Riot Blockchain Business Model

Riot Blockchain is a Colorado-based cryptocurrency mining company. Bitcoin is mined using specifically trained mining rigs that solve complicated algorithms to generate a diminishing BTC reward. As the supply grows, it gets harder to mine more bitcoins, thus requiring more computing power.

It’s called proof of work (PoW) mining.

At the beginning of the blockchain, anyone with a home PC and a good enough graphics card could mine a bitcoin. As it grew, mining bitcoins required specific ASIC mining rigs, many of which are developed by Bitmain.

In fact, Riot uses Bitmain’s Antminers to mine bitcoins. So, it’s not a traditional mining company that’s digging in the ground with heavy machinery from companies like Caterpillar. Instead, they’re data centers using enterprise resources to power racks of this mining rigs.

Riot entered 2021 with just over 6,000 bitcoin miners running, and it has another 23,000 on order with hopes to install and start mining by year end. This is easier said than done, however, as there is a global chip shortage due to the pandemic crippling manufacturing.

Ironically, Riot Blockchain was initially founded as Bioptix Diagnostics, a biotech company focused on a molecular interaction technology platform. That didn’t pan out, so the company pivoted in 2017 to the mining on the Bitcoin blockchain.

This has investors wondering what the point of investing in the company over the coin would be.

Why Not Just Buy Bitcoin?

Bitcoin is still in its infancy, but it has a long history. One of the more infamous stories is a May 2010 Papa Johns pizza order that cost Laszlo Hanyecz 10,000 BTC. At $50,000 per BTC, that those two large pizzas cost $500 million.

The deflationary nature of bitcoin makes it scary to hold. And the volatile price swings are too much for the average person to handle. Not only that, but it’s not as easy to hold as a dollar or even a stock. Crypto requires keys and some technical knowledge.

Then there was the Mt Gox hack and subsequent government shutdown. Many people lost their bitcoin holdings with this early crypto exchange. The proliferation of hacks makes hot wallets unsafe everywhere, even major exchanges that are now largely approved by regulators.

Approximately 4 million bitcoins are forever lost, as the holders lose the crypto keys, die, and other life changes happen. That’s a large chunk of the 21 million total supply and 18.5 million already mined.

Add to all this that a single bitcoin would cost you over $50,000 in Q1 2021. There’s no telling if it will be $1 million or $1 in another decade, although sentiment is starting to strengthen on it being around to stay forever.

This puts a lot of negative pressure on cryptocurrency ownership.

Pros Of Riot Blockchain Vs Bitcoin

What Riot Blockchain has over Bitcoin is that it’s an actual organization with named people to hold accountable.

Bitcoin is a leaderless organization that’s meant to decentralize and democratize finance. This is a great theory but leaves nobody to point the finger at if things go wrong.

Also, investing in cryptocurrency is arguably riskier than investing in an SEC-approved security. While cryptocurrencies do have some level of voting rights, it’s not the same as a publicly traded company yet.

Government transparency laws make it easier to understand the fundamentals behind a company like Riot over a project like Bitcoin.

But that doesn’t mean Riot is without risk.

Cons Of Riot Blockchain Vs Bitcoin

Never forget that Riot Blockchain started as a failed biotechnology company that pivoted at the first meteoric bitcoin price rise in 2017 and 2018.

It was part of a wave of companies that simply added “blockchain” to their names to gain investor interest (check out the Long Island Blockchain Company).

Such a pivot could be argued as a great move, but bitcoin mining is capital intensive. Buying the machines and running them burns through millions of dollars, and if the price of bitcoin goes down, Riot Blockchain share price will follow.

The misnomer in its name also gives the wrong impression of the cryptocurrency and blockchain industries. Riot is a mining company, not a blockchain. It’s a minor nitpick that’s likely to form a chip on the shoulder of the crypto community.

Riot Blockchain vs Bitcoin: The Bottom Line

Riot Blockchain rose in value exponentially alongside bitcoin. That’s because the company’s business model is entirely dedicated to mining the famed alpha cryptocurrency. As bitcoin’s price increases, the company’s cash flow goes with it. But it has some tough decisions to make, as do any crypto investors.

There are only 21 million possible BTC ever going to exist, and we won’t reach that limit in your lifetime. That means scarcity will come into play, especially as we see major investors buying large volumes of the currency.

Owning cryptocurrency is more difficult than fiat cash, and it’s common for people to lose their crypto holdings. Still, the stock market proves to be just as difficult, and Bioptix was a casualty in the war. If it can rise from the ashes as Riot Blockchain, anything is possible.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.