Key Points
- Riot Platforms’ stock is declining after a negative report from a short seller on the U.S. Bitcoin mining industry.
- Kerrisdale Capital analysts argue that Bitcoin ETFs and Bitcoin itself are better investments than Riot Platforms.
Riot Platforms, a Bitcoin mining company, is experiencing a drop in its stock value following a critical report by a short seller.
The report, released by Kerrisdale Capital, paints a bleak picture of the U.S. Bitcoin mining industry.
Bitcoin Mining Challenges
Kerrisdale’s analysts describe Bitcoin mining as one of the worst business models for a public company. They cite unpredictable revenue, high capital intensity, intense competition, and increasing regulatory scrutiny. They also note that Riot Platforms operates entirely in Texas, a state that is becoming less welcoming to crypto companies.
Kerrisdale suggests that investors would be better off putting their money in Bitcoin exchange-traded funds (ETFs) or in Bitcoin (BTC) itself. They argue that Riot’s shares have a higher chance of dilution than they do of outperforming gains from Bitcoin.
Market Reaction
The report has had a significant impact on Riot’s stock value, which has fallen by 7.7% to $8.91 per share. The company’s year-to-date performance is also down by 42%. Other Bitcoin mining companies, including Marathon Digital and Gryphon Digital, have also seen their stock values decline.
Kerrisdale’s report also criticizes the argument made by Marathon Digital executives that Bitcoin mining stocks are comparable to oil and gold producers. The analysts point out two flaws in this comparison: the halving of Bitcoin miners’ unit economics every four years and the increased difficulty of mining due to global competition.
Global Mining Competition
The report highlights the dominance of China-based Bitmain and MicroBT, which produce about 90% of the ASICs used for Bitcoin mining. Kerrisdale suggests that investors in Riot Platforms are ignoring the risks posed by shifts in state and local politics and the strain on Texas’ fragile electric grid.
The report comes as Bitcoin miners release their monthly production updates for May, the first full month since the latest Bitcoin halving in late April. Bitcoin halvings, which reduce the number of bitcoins miners receive as a reward, occur automatically roughly every four years.
Kerrisdale notes the increase in mining projects in South America, the Middle East, and Africa and the influx of Chinese equipment into Russia. The analysts argue that this international competition will continue to intensify, making it unlikely that U.S.-listed companies will become long-term low-cost producers in the commodity industry.
Past Criticisms
This is not the first time Kerrisdale has criticized Bitcoin-related equities. In March, the firm released a short report on MicroStrategy, a company that trades at a premium to Bitcoin. Despite this criticism, MicroStrategy’s shares have increased by about 145% year to date.
Meanwhile, the price of Bitcoin has risen by 60% this year, trading at the $70,800 level. The digital currency continues to be a popular investment choice, despite the criticisms leveled at related equities.
