Technology

Why One Analyst Sees Over 40% Upside in This Bitcoin Play

Bitcoin (BTC) has come roaring back from its lows below $30,000 earlier this month and cryptocurrency investors have been cheering this rally the whole way up. Riot Blockchain Inc. (NASDAQ: RIOT) has been a huge beneficiary of Bitcoin, and as prices have been rising, one analyst is zeroing in on this crypto-mining operation.

BTIG initiated coverage with a Buy rating and a $45 price target, implying upside of 41% from the most recent closing price of $31.90.

Note that Riot Blockchain has established itself as a leader in the BTC mining sector, currently operating roughly 2.4% of global BTC mining capacity (based on a total global hash rate of about 100 million Tera/Hashes per second). While BTC mining is a global industry, Riot owns and operates its mining rigs exclusively in the United States. Despite concerns around U.S. power infrastructure and retail power prices, the United States actually has one of the few power grids in the world that has excess power capacity more often than not, reliability and very attractive price per kilowatt-hour (kWh), depending on location. Riot operates its miners in two of these attractive price per KWh locations).

At the same time, mining in the United States also looks to have the added benefit of stability, while separately, earlier this year, China cracked down on BTC mining. Right now, BTC mining is an arms race, with mining equipment and access to attractive megawatts, which are considered the key drivers of success.

BTIG commented on Riot’s recent acquisition:

The acquisition of Whinstone US in May 2021 positions Riot as a leading US-based BTC company which owns BTC mining rigs but also owns a hosting facility for other crypto miners looking to plug-in to infrastructure. Bottom line: Whinstone provides ample capacity for Riot to plug-in its mining equipment on order, but also provides a longer term strategic opportunity for Riot to diversify its revenue streams. In terms of size, Whinstone has ~300MW of capacity with current plans to scale it up to 750MW and eventually over 1GW.

With this new acquisition, Riot currently has miners in Massena, New York, and at Whinstone. The facility in New York is a co-location hosted by Coinmint, where Riot has about 16K miners running. At Whinstone, the company currently has around 8K miners and plans to move all of its 65k in orders as they deliver through the fourth quarter of 2022.

BTIG gave its investment thesis as follows:

RIOT is looking to expand its infrastructure footprint in order to gain economies of scale and become a low-cost power Bitcoin miner, but also an owner and operator of mining facilities. The firm has a strong delivery pipeline of some of the best next-generation miners that it will look to deploy at its newly secured hosting facility, Whinstone, in Rockdale, Texas.

Riot Blockchain stock was last seen relatively flat at $31.92, in a 52-week trading range of $2.35 to $79.50. The consensus price target is $49.27.