Bitcoin
Crypto Miner Mutiny Targeted by Short Seller Kerrisdale in ‘Faulty’ Business Model
(Bloomberg) — Bitcoin mining is a tough business. This means cryptocurrency enthusiasts should buy tokens instead of miner shares, according to Kerrisdale Capital Management LLC.
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The strategy is part of the bets the short seller has been making across the industry with its latest short position targeting Riot Platforms Inc. The thesis is that investing in a business built to earn unpredictable revenues in a tremendously competitive environment is flawed when Crypto believers can instead buy Bitcoin immediately.
Shares of the Castle Rock, Colorado-based company fell as much as 8.9% on Wednesday after Kerrisdale founder Sahm Adrangi’s report highlighted Riot’s shareholder dilution through stock sales while Adrangi wrote letters to Texas government officials. The focus of those missives centered on Texas energy laws that he said pay Riot to reduce energy use when prices soar.
A Riot representative did not immediately respond to an email and phone call from Bloomberg News seeking comment.
“All Bitcoin miners are sold, the entire business model, especially at current valuations, doesn’t make sense,” Adrangi said over the phone. Crypto mining is a commodity business and “the barriers to entry are almost zero if you have access to a computer and power.”
U.S. mining companies are exposed to global competition as new mining projects emerge around the world that “will only continue to intensify,” the report states. The ability of investors to purchase exchange-traded funds and exchange-traded products with low fees has also made the need to look for a Bitcoin proxy irrelevant, the report argues.
This isn’t the first time a company exposed to cryptocurrency has been caught in Kerrisdale’s crosshairs. In March, the firm promoted a short-selling pairs trade on Michael Saylor’s MicroStrategy Inc. while taking a long position in Bitcoin.
“None of the reasons commonly given for MicroStrategy’s relative attractiveness justifies paying well more than double for the same coin,” Adrangi wrote at the time.
This has been a winning bet for the company, before accounting for any costs of taking the position. MicroStrategy shares have fallen about 13% since the report was published, while Bitcoin is up more than 2%.
There are risks, however, that Bitcoin miners could pivot their business models and attract investors as well as strategic buyers.
The story continues
Core Scientific Inc., which emerged from bankruptcy earlier this year, soared 40% on Tuesday after announcing it had signed a series of 12-year contracts with CoreWeave Inc. worth about $1 billion, Bloomberg News reported citing a person with knowledge of the subject.
–With assistance from Carmen Reinicke.
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