- Riot shares experienced a notable rebound on June 5, following the dissemination of a critical report by short seller Kerrisdale Capital.
- This document, released just before the Nasdaq began trading, accused Riot of poor management and predicted the firm’s imminent downfall, asserting that Bitcoin miners are peddling “snake oil.”
- Kerrisdale declared a “war against bitcoin miners” on social media, likening them to “snake oil salesmen” and accusing them of depleting investor capital while causing environmental harm.
Riot Platforms saw a stock recovery after a damning report by Kerrisdale Capital accused them of mismanagement and predicted their collapse. Explore the intricate details and ramifications of this financial showdown.
Kerrisdale Launches an Offensive on Bitcoin Miners
In its scathing June 5 report, Kerrisdale Capital asserted that Riot Platforms Inc. was more proficient at manipulating energy arbitrage and issuing stock than creating shareholder value through cryptocurrency mining. This assertion was underscored in a post on social media platform X, where the firm declared a comprehensive “war against bitcoin miners.” They described these entities as deceitful operators burning through investor capital and exacerbating environmental issues.
Today, we launch a war against bitcoin miners, an industry of snake oil salesmen that are incinerating both investor capital and the environment and should be banished from America, much like the Chinese RTO frauds that we helped kick out a decade ago (1/10)
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024
Following the report, Riot’s stock initially plunged by 9.6% but rebounded to close with a marginal decline of 0.21% at $9.65. As trading resumed, the stock price climbed to $10.31 by Friday’s opening.
Kerrisdale’s Critique of Riot’s Business Model
Kerrisdale’s report sharply criticized Riot’s business model, accusing it of being heavily reliant on cash-burning and continuously diluting retail shareholders through frequent stock issuances. The firm highlighted that Riot’s outstanding shares had increased sixfold since 2020, labeling this strategy unsustainable and detrimental to long-term shareholder value.
“If Riot were to cease issuing stock, it would have to start drawing down on its cash and Bitcoin reserves,” the report stated. Additionally, Kerrisdale emphasized Riot’s challenges, including heightened regulatory scrutiny in Texas, revenue cuts due to Bitcoin halving, and fierce competition from more efficient global miners.
Despite heavy investments in infrastructure, RIOT’s Bitcoin production per share and Bitcoin holdings per share have declined. Shareholders only benefit if Bitcoin prices rise, which makes direct investment in Bitcoin via low-fee ETFs a more sensible option 7/10
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024
The report questioned the wisdom of investing in Bitcoin mining firms like Riot, suggesting that direct ownership of Bitcoin or low-fee ETFs would be more beneficial. “Why invest in Riot, where Bitcoin holdings per share and production per share are declining, when direct Bitcoin ownership is an option?” Kerrisdale inquired.
Predicted Valuation Collapse
Kerrisdale’s aggressive stance continued on social media, where the firm detailed its position and shared letters sent to Texas state officials. They argued against investing in Bitcoin miners like Riot, describing them as facing severe challenges including regulatory hurdles, high capital demands, and global competition.
Kerrisdale concluded that regulatory pressures and business model flaws would lead to a significant devaluation of RIOT and similar companies. They emphasized RIOT’s failure to improve per-share Bitcoin and cash metrics as a critical vulnerability.
RIOT’s failure to boost Bitcoin and cash per share erodes the core rationale for holding miner stocks versus Bitcoin. As regulatory scrutiny intensifies and investors recognize these flawed models, valuations for RIOT and peers will plummet 10/10
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024
Kerrisdale has a history of targeting crypto-related firms; they previously criticized MicroStrategy and advocated for spot Bitcoin ETF investments over shares in Bitcoin-holding companies.
Conclusion
In summary, Kerrisdale Capital’s critical report on Riot Platforms underscores significant concerns about the sustainability and profitability of Bitcoin mining firms. While Riot may recover in the short term, their long-term viability remains questionable under current business models and regulatory challenges. Investors are advised to consider direct Bitcoin ownership or low-fee ETFs as potentially more stable alternatives.
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