• Kerrisdale Capital is short selling Riot Platforms’ stock, claiming that U.S. bitcoin miners like Riot are “competing in a global race they cannot win”
• Kerrisdale believes Riot is a poor way for investors to gain exposure to bitcoin, and that bitcoin itself or bitcoin ETFs are better investments
• The short seller argues that bitcoin mining is an extremely competitive commodity business with unpredictable revenue, making it one of the worst business models for a public company
Kerrisdale Capital, a short seller firm, released a critical report on Riot Platforms and the bitcoin mining industry in the US. The report claims that bitcoin mining companies like Riot are a poor investment compared to just holding bitcoin itself.
Short Seller Firm Kerrisdale Capital Criticizes Riot Platforms
- Kerrisdale Capital said Riot is a “fundamentally poor way for investors to express a view on bitcoin.”
- The short report comes as bitcoin miners are releasing monthly production updates for May, the first full month since the latest bitcoin halving.
- Riot Platforms stock fell significantly on Wednesday after the report’s release.
- Kerrisdale analysts wrote bitcoin mining “is easily among the worst business models for a public company we have ever encountered.”
Kerrisdale Sees Systemic Issues With Bitcoin Mining Industry
- The firm says bitcoin mining is unpredictable, capital intensive, hyper competitive, and drawing regulatory scrutiny.
- Miners face their revenue halving every 4 years after bitcoin halvings.
- Most mining equipment comes from just two suppliers based in China.
- Kerrisdale believes shifts in politics and climate concerns threaten miners, especially in Texas.
Report Claims Bitcoin ETFs and Bitcoin Itself Are Better Investments
- Kerrisdale is shorting Riot stock but holds bitcoin as a hedge.
- The firm says bitcoin ETFs avoid the issues facing miners as a business.
- Kerrisdale believes Riot shares are likely to continue declining long-term.
- The price of bitcoin itself is up significantly in 2022, while miner stocks have fallen.
Kerrisdale Has Previously Targeted Bitcoin-Related Stocks
- In March, Kerrisdale released a critical report on MicroStrategy‘s bitcoin holdings.
- MicroStrategy shares initially fell but have recovered value since then.
- Kerrisdale said MicroStrategy was overvalued compared to its actual bitcoin holdings.
- The firm sees bitcoin as a quality investment, but bitcoin mining stocks as deeply flawed.
Bitcoin Miners Face Production Halvings Every 4 Years
- The Kerrisdale report comes as miners share May production after the latest halving.
- Bitcoin halvings cut the block rewards miners receive by 50%.
- Competition is heating up as miners rush to boost production before halvings.
- Kerrisdale believes overseas miners will continue to gain market share over US companies.
Conclusion
Kerrisdale Capital made a strong bear case against the bitcoin mining industry, especially US-listed companies like Riot Platforms. The firm sees systemic issues with mining economics and competitive dynamics. While Kerrisdale is shorting mining stocks, it sees bitcoin itself as a worthwhile investment. The ongoing bitcoin halvings will continue to pressure miners to control costs and boost efficiency. Riot and other mining stocks face an uphill battle according to the report.
