Short seller hits Riot Platforms, says US bitcoin miners are 'competing in a global race they cannot win'

Riot Platforms' stock is falling in Wednesday’s session after a short seller released a new report on the company and the entire U.S. bitcoin mining industry.

“Bitcoin mining is easily among the worst business models for a public company we have ever encountered,” Kerrisdale Capital analysts wrote in a 17-page report this morning. “[U]npredictable revenue, capital intensive, extremely competitive, a pure commodity product, and lately drawing intense regulatory scrutiny even in crypto-friendly places like Texas where Riot has 100% of its bitcoin production.”

Bitcoin exchange-traded funds and products and BTC itself are better investments, according to Kerrisdale. The firm is holding bitcoin as a hedge against its RIOT short position.

“Riot is a fundamentally poor way for investors to express a view on bitcoin and over the long-term shares have a much greater chance of being diluted into dust than outpacing gains from the new digital gold,” they wrote.

Riot’s stock was down 7.7% to $8.91 per share at publication time, and it was down 42% in the year-to-date period.

Bitcoin mining peers also took hits on Wall Street. Marathon Digital was down about 3.3%, while Gryphon Digital dropped 4% at publication time.

Kerrisdale noted that Marathon Digital executives have tried to defend the relevance of bitcoin mining stocks versus bitcoin ETFs by comparing its shares to that of oil and gold producers, but said this presents two problems: “1) oil and gold producers do not have their unit economics literally halved every four years, which requires spending furiously in advance of those dates, and 2) a gold miner’s unit costs to physically extract gold from its particular mine is not made dynamically more difficult by competitors across the globe buying the same mining equipment from the same two suppliers.”

China-based Bitmain and MicroBT produce about 90% of the ASICs used to mine bitcoin. An ASIC miner is a device that uses ASICs for the sole purpose of mining digital currency.

Kerrisdale believes Riot Platforms investors are “oblivious to shifts in state and local politics and headline risk as we approach another summer which will test Texas’ fragile electric grid.”

The Block reached out to representatives from Riot Platforms and Maratho Digital but did not receive responses as of publication time.

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Post-halving data coming in

The short report comes the same week Bitcoin miners release their monthly production updates for May, the first full month since the latest Bitcoin halving in late April.

Bitcoin halvings are programmed to occur automatically roughly every four years. After a halving event, miners receive 50% fewer bitcoins as a subsidy reward for every block of transactions they mine and add to the blockchain. They continue to earn additional transaction fee rewards for each block mined.

“Not a day goes by without a new, significant mining project in South America, Middle East and Africa, while a torrent of Chinese equipment continues to flow into Russia,” according to Kerrisdale. "Competition abroad will only continue to intensify and it strains credulity that US-listed companies…will be long-term lowcost producers and therefore market share winners in this extremely commodity industry.”

Not the first time for Kerrisdale

While saying they are long bitcoin, Kerrisdale has gone after bitcoin-related equities before. On March 28, the firm released a short report critical of MicroStrategy.

“We are long bitcoin and short shares of MicroStrategy,” they wrote at the time, “a proxy for bitcoin which trades at an unjustifiable premium to the digital asset that drives its value. Shares of MicroStrategy have soared amid a recent rise in the price of bitcoin but, as is often the case with crypto, things have gotten carried away.”

MicroStrategy’s shares are up about 145% year to date, trading around $1,681.48 at publication time. Shares were trading north of $1,900 at the time of the Kerrisdale report.

Meanwhile, the price of bitcoin is up 60% this year, currently trading at the $70,800 level according to The Block’s price data .