Kerrisdale Capital Management LLC, known for its short-selling strategy, has taken note of Riot Blockchain Inc., criticizing its business model for being flawed in the difficult environment for Bitcoin mining. Investing directly in Bitcoin is a more viable option for cryptocurrency enthusiasts than buying miner shares, according to Kerrisdale.
The report released by Kerrisdale founder Sahm Adrangi highlighted the dilution of Riot’s shareholders due to the company’s stock selling practices. Adrangi’s letter to Texas government officials also raised concerns about Riot’s energy usage practices and their impact on state energy laws.
Shares of Castle Rock, Colo.-based Riot fell as much as 8.9% following the release of Kerrisdale’s report. The company has not yet responded to Bloomberg News’ request for comment.
Adrangi emphasized that Bitcoin mining is a highly competitive commodity business with minimal barriers to entry, especially as new mining projects emerge around the world. He argued that Bitcoin miners’ current valuation does not justify investment, especially considering the availability of low-cost exchange-traded funds for investors seeking Bitcoin exposure.
This is not the first time Kerrisdale has targeted companies with exposure to cryptocurrency. In March, the firm recommended pair trading, shorting MicroStrategy Inc. while simultaneously taking a long Bitcoin position, a strategy that has proven successful so far.
However, there are potential risks associated with selling Bitcoin miners, as evidenced by the recent surge in Core Scientific Inc.’s stock price following news of long-term contracts and proposed acquisitions. Despite the challenges highlighted by Kerrisdale, the dynamic nature of the cryptocurrency market leaves room for miners to adjust their business models and attract investors or strategic buyers.
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