Riot Platforms (NASDAQ:RIOT) stock is taking a tumble after Kerrisdale Capital published a short report on the company while simultaneously launching a “war” against Bitcoin (BTC-USD) miners. Kerrisdale disclosed a short position in RIOT while using a long position in Bitcoin as a hedge.
Kerrisdale notes that Bitcoin mining is an inefficient business model due to its unstable revenue, high capital requirements and commodity-like aspects. The short seller adds that Riot diluted shareholders by 18% in April through the issuance of $507 million in shares while executives received “excessive management compensation.” That has resulted in the company’s monthly mined Bitcoin per share falling every month since November 2023.
Riot mines 100% of its Bitcoin in Texas, although regulatory scrutiny has picked up as of late due to environmental concerns at both the state and local levels.
“A clear sign of how the business environment for miners has soured in Texas occurred in March when Navarro County commissioners voted against a tax abatement for Riot’s key growth project in Corsicana,” said Kerrisdale. The short seller believes that RIOT stock shareholders are understating regulatory risks as the temperature heats up, which could strain Texas’s electric grid in the process.
RIOT Stock: Kerrisdale Issues Short Report on Riot Platforms
As summer approaches, Bitcoin miners are also dealing with the effects of the last block reward halving, which has negatively affected unit profitability. Kerrisdale mentioned that the upcoming second-quarter Bitcoin miner results and May production updates will allow shareholders to better understand these factors.
Meanwhile, the short seller also notes that the BTC mining industry is extremely competitive, adding that “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.” Kerrisdale believes that competition will only continue to ramp up as the global race to mine Bitcoin for as little as possible continues.
Finally, the proliferation of low-fee Bitcoin exchange-traded funds (ETFs) and exchange-traded products (ETPs) has made RIOT stock a less attractive option as a Bitcoin proxy.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
