In today’s Exponential Investor

  • Blowing away Wall St (again)
  • Getting into bitcoin mining
  • PayPal tells the banks, it’s OK

On 16 August 2021 I wrote to you about how “Wall St doesn’t get crypto”.

I said,

… if you were in any doubt about how misunderstood crypto investing is the conventional financial markets in the United States, just look at the latest filings from listed crypto-exchange Coinbase.

Wall Street analysts had been expecting Coinbase to post revenues around $1.85 billion for the quarter. In fact, the company reported $2.23 billion.

The analysts had been expecting trading volume to be around $381 billion. Coinbase reported $462 billion.

It’s no great surprise Wall Street still doesn’t “get” it.

After all, they’re deeply rooted in a system that’s centuries old, a monetary system that took a divergent turn for the worse in 1971.

I don’t expect they will “get” it for a while still. And if you need any further proof about how off the boil Wall Street is about the crypto revolution, then check out this…

I predicted a RIOT

Riot Blockchain (NASDAQ:RIOT) is a crypto-focused company focused solely on bitcoin mining.

That’s it. That’s all it does (for now at least).

You might think that’s not much of a business. If you think that, you’d be wrong. Wall St thinks that, and they’re wrong too.

Riot is a $3.4 billion operation. That’s a hefty valuation for a company that runs 7,500 S19 bitcoin mining rigs.

But it’s a valuation the market seems to be happy with. And so the market should be.

This week Riot released its latest earnings results and they smashed all of the Wall St analyst expectations… just like Coinbase’s did.

Where expectations were earnings of $0.03 per share, Riot blew that away with earnings per share of $0.22… just a lazy 633% difference. Also, it’s a gigantic jump from the loss of $0.31 per share it posted for the same quarterly period in 2020.

When it came to its actual revenue (which is from mining bitcoin remember) Riot posted quarterly revenue of $31.5 million – a 1,540% lift from the same period from 2020.

As explained by Zacks Equity Research on Nasdaq.com, “This quarterly report represents an earnings surprise of 160%.”

I love how Zacks calls it a “surprise”.

Are we really surprised? No, we’re not.

Coinbase and Riot are both smashing to pieces the earnings and results estimates from Wall Street. This is no surprise. This is affirmation of the significance and scale of the crypto revolution.

How to become a miner

What I found interesting about Riot’s results though was the sheer scale of the operation.

Let me explain…

See this below.

Source: editor’s own picture

It’s a Bitmain Antminer S9. It’s mine. Well it was mine.

In 2017 I bought it to do some bitcoin mining. Procuring this serious piece of kit was a fair leap from the first time I had had a crack at bitcoin mining back in 2011.

Back then you needed just a pretty normal computer. Or at least a normal one with a semi-decent graphics card.

The challenging part in 2011 was figuring out what to do, how to do it and running the computer at all hours. It was, frankly, pretty hard.

But with the Bitmain Antminer S9 that I later bought, it was so… so… so much easier.

It was very much plug-and-play. You could plug in the Antminer, pull up the graphical interface, connect to a mining pool… and away you went.

The 2011 to 2017 period saw a huge change in terms of what had to be done to get bitcoin. In 2017 actually mining much bitcoin was hard and took a long time. A single Antminer like this would, however, eventually result in some bitcoin.

But there were cost considerations to keep in mind.

The cost of the machine to run, as in electricity, was high. We just had it plugged into a wall socket at home.

The other cost, the higher cost for a domestic application, was the sound and heat.

That beefy piece of hardware is a processing beast. It’s called an “ASIC” (application-specific integrated circuit). That means that it only does one job.

Mining crypto.

The beast was so loud – because it emitted so much heat from all that data processing and the fans needed to keep it even modestly cool were churning out at thousands of RPM.

Imagine a car idling at about 6,000 RPM in your house, 24 hours a day, every day, non-stop.

It would do your head in. And the S9 did our head in. The actual use of it was too costly and annoying to keep it running at home for the output it was delivering.

I sold it.

However, that was not before I had learned a lot. The main thing being that if you had the resources, the facilities and the access to cost-effective energy, crypto mining could be lucrative. It’s why China became a dominant player in crypto mining… until the authorities banned it.

Now companies like Riot who have 20,746 mining rigs (after installing another 4,600 S19 miners just this quarter) are fast becoming titans of the crypto mining world.

They are, of course, not alone. There are several companies out there now involved in the lucrative world of crypto mining. A number of them are listed on public markets.

Once again, it may seem out of this world, even ridiculous to you that a company that just runs machines to mine crypto can be so valuable.

But believe me, unless you’ve seen it first-hand, tasted it, experienced it, know what it can do, then you may just end up like all those Wall Street analysts… wrong.

Speaking of titans of industry

And just to reinforce how significant the crypto revolution is, looking beyond what Wall Street thinks and beyond the potential for mining crypto, it’s worth remembering who is moving into this space now too.

And I’m not just talking about retail investors, people like you.

I’m talking about major global corporations.

Like PayPal.

PayPal started offering up crypto services to customers in the United States last year. The company decided that it could no longer ignore what was staring it in the face.

Well now it’s expanding that offering, right here in the UK.

That means soon you’ll be able to log in to PayPal and be able to directly buy, hold and sell crypto.

Considering how many of the UK high street banks have been banning and blocking crypto transactions, this is a huge deal for the UK market.

PayPal is saying to the UK financial services market that crypto is ok. That it can be trusted and it can become an opportunity for customers.

Perhaps Paypal’s move will be a catalyst for the rest of the UK banks to take a far more serious and open stance on how they come to embrace the revolution and the new, crypto financial system.

Until next time…

Sam Volkering
Editor, Exponential Investor

PS New opportunities from crypto will complement, and not displace, opportunities from conventional markets. In searching for those opportunities, how do you maximise the chance to hit the targets? Find out more here…