Riot shares experienced a recovery on June 5 following a report from short seller Kerrisdale Capital.
The paper, released just before the Nasdaq opened, accused Riot of mismanagement and predicted the firm’s impending collapse, stating that Bitcoin miners are selling “snake oil.”
Kerrisdale ‘Declares War’ on Bitcoin Miners
Kerrisdale’s June 5 report said that RIOT was more proficient in “playing energy arbitrage games and issuing stock” than generating value for shareholders through crypto mining. The firm emphasized this point in an accompanying post on X, declaring a “war against bitcoin miners,” who they likened to “snake oil salesmen,” accusing them of burning through investor capital and contributing to environmental degradation.
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
Reacting to the report, RIOT shares initially plummeted by 9.6% before staging a recovery to close down by 0.21% at $9.65. As of the time of writing, Riot’s stock, traded on the Nasdaq under the ticker RIOT, has risen to $10.31 on Friday opening.
Kerrisdale’s report accuses Riot of operating on a business model that burns cash and relies heavily on diluting retail shareholders through continuous stock issuance. Since 2020, Riot’s outstanding shares have increased sixfold, a tactic Kerrisdale argues is unsustainable and damaging to shareholder value.
“If Riot were to stop issuing stock, it would be forced to start drawing down on its cash and Bitcoin holdings,” the report noted. Kerrisdale further pointed out that Riot is facing several challenges, including increased regulatory scrutiny in Texas, reduced revenues due to the Bitcoin halving, and stiff competition from more cost-efficient global miners.
Despite all it has spent on facilities & equipment, $RIOT‘s BTC production per share and BTC hodl per share have declined. The only way shareholders ever benefit is if bitcoin prices go up – which is a terrible way to invest in bitcoin given the availability of low-fee ETFs 7/10
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024
The report also questioned the value of investing in Bitcoin mining companies like Riot compared to directly owning BTC or investing in low-fee exchange-traded funds (ETFs). “Why own shares in a company like Riot, which has seen Bitcoin holdings per share and Bitcoin production per share steadily decline, versus simply owning Bitcoin itself?” Kerrisdale asked.
Valuation Collapse
The aggressive stance continued on X, where Kerrisdale detailed their strategy and shared two letters addressed to Texas state officials. They also labeled Bitcoin mining as a capital-intensive, competitive, and regulatory-challenged industry, arguing against investing in such companies as BTC proxies.
Kerrisdale highlighted RIOT’s struggle to compete globally in cost-effective mining, its poor financial performance, and reliance on incentives and tax credits under scrutiny. They concluded by warning of an impending valuation collapse for RIOT and peers amid increasing regulatory pressure and business model skepticism.
$RIOT’s inability to grow bitcoin+cash on a per share basis undermines the sole reason to own a miner vs bitcoin. As local, state & federal regulatory pressure increases & investors recognize the futility of these biz models, valuations will collapse for $RIOT & its peers 10/10
— Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024
This isn’t the first time Kerrisdale has targeted companies in the cryptocurrency space. Earlier, the firm bashed MicroStrategy, advocating for investments in spot Bitcoin ETFs over holding shares in BTC-holding firms like MSTR.
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