With a subpoena hanging over its head and the discovery of material weaknesses in its financial reporting, Riot Blockchain isn’t exactly a favourite stock among investors.
The cryptocurrency company has come under immense scrutiny since it suddenly changed its name from Bioptix to Riot Blockchain in 2017. Given that the move occurred at the time of the Bitcoin boom, this understandably raised a few eyebrows among regulators.
There are signs that Riot Blockchain has recognised the error of its ways and that a brighter future is on the horizon. Whether or not it can win over investors remains to be seen, but some of its recent moves are being seen in a more positive light.
Before we take a look at its latest plans, here’s a reminder of what Riot Blockchain is and its history.
What is Riot Blockchain?
Riot Blockchain started out as Bioptix around two decades ago, making diagnostic machinery for the biotech industry. In October 2017, the Ohio-based company revealed it was changing its name to Riot Blockchain and shifting its focus to an investor and operator in blockchain technologies. At the same time, it announced it had made an investment in Coinsquare – a Canadian exchange for trading digital currencies.
Since then, Riot Blockchain has invested in other crypto companies such as Tesspay, which plans to develop a blockchain-based escrow service for wholesale telecom carriers, and Verady, which provides cryptocurrency accounting and audit technology services.
The company has also launched its own Bitcoin mining operation, which it says will be a focal point for Riot’s expansion plans moving forward.
Why has it come under scrutiny?
Riot’s stock price skyrocketed when it was revealed it was changing its name from Bioptix and focusing on the blockchain market. Bitcoin’s price was hitting record highs, and as investors chased all things crypto, they couldn’t get enough of the newest kid on the block. Riot Blockchain was making news on an almost daily basis.
Unfortunately, the Securities and Exchange Commission (SEC) took a different view. In April 2018, the SEC issued a subpoena requesting details of three registration statements. The regulator had previously warned that companies who changed their name to include the word blockchain would face increased scrutiny. The announcement of the subpoena resulted in Riot Blockchain’s share price plummeting.
Meanwhile, a CNBC investigation in February 2018 found a number of red flags at the company, including annual meetings that were postponed at the last minute, sales of stock by company insiders soon after the company’s name change, dilutive share issuances on favourable terms to large investors, confusing SEC filings, and evidence that a major shareholder was selling shares while everyone else was buying.
Earlier this year, Riot Blockchain was forced to admit “material weaknesses” in internal control over financial reporting, and revealed it had just $225,000 in cash compared to more than $41.6 million at the end of 2017.
What has changed?
The SEC investigation associated with the subpoena is still ongoing, but Riot claims it has been fully cooperating, so hopefully investors can put the issue to bed soon. In the meantime, the company has been pushing ahead with its mining operation. In 2018, it produced 1,081 Bitcoins and 3,023 Litecoins, generating revenue of approximately $7.7 million. The company currently has approximately 7,850 cryptocurrency ASIC miners deployed using around 11.5MW of energy capacity. Its hashing power was 101 Petahashes as of December 31 2018, which ranks the company among the largest publicly-listed Bitcoin miners.
Riot Blockchain is also in the process of developing its own cryptocurrency exchange, called RiotX. It intends to develop banking and trading services as well as a digital wallet. Users will be able to create accounts connected to US banking institutions, allowing them to hold and transfer either fiat or crypto assets.
Investors may also take comfort from Riot Blockchain’s acquisition of Miami-based futures brokerage Logical Brokerage Corp. It is registered with the Commodity Futures Trading Commission (CFTC) and will hopefully go some way to improving Riot Blockchain’s tarnished reputation.
As they say, the proof of the pudding is in the eating, so we’ll just have to wait and see whether Riot Blockchain lives up to its promises – and whether it manages to put the past behind it.