Editor’s Note: This article was updated on March 17 to include more up-to-date information about SOS’ response to accusations from short sellers.
I’m getting nervous about cryptocurrencies. No, I’m not going full-on bearish. Fundamentally, I see tremendous utility for virtual currencies and their potential to spark frictionless global transactions. Also, the underlying blockchain technology can foster intermediary-less dealings in other business sectors. But the latest drama to hit the broader space involving SOS Ltd (NYSE:SOS) is enough to make you rethink not only SOS stock but the decentralized digital market itself.
As you may have heard, short-selling research firms have targeted SOS, claiming that the company is nothing more than a shell firm masquerading as a legitimate crypto-mining firm in order to defraud shareholders of their money.
It’s an alarming accusation, one that a BusinessWire report summed up well:
On February 26, 2021, Hindenburg Research and Culper Research published reports regarding SOS, alleging that the Company was a “pump and dump” scheme that used fake addresses and doctored photos of crypto miners to create an illusion of success. The reports pointed out that SOS lists a hotel room as the company’s headquarters and that SOS purportedly bought mining rigs from a fake shell company. Moreover, the reports noted that the photographed SOS “miners” weren’t the A10 Pros the company claimed to own but were actually Avalon’s A1066 miners.
Not surprisingly, law firms are investigating the matter as a possible case of securities fraud. As for SOS stock, shares have been all over the map. At its peak closing price, the equity unit was nearing $13. At time of writing, it’s down to about $8.
Here’s the crazy part – SOS stock bounced higher following the accusation on Feb. 26. That almost makes no sense.
I get the part that short sellers often have an agenda with their hit pieces. But the blockchain can be a shady place. At the very least, investors should have been wary about SOS stock, not bidding it up like crazy.
SOS Stock Like Cryptos Needs a Reality Check
To those who say that I’m being overly negative about cryptocurrencies, I’d like to remind readers that I was one of the first voices at InvestorPlace to support crypto investments. Further, I think my recent record speaks for itself.
- On Nov. 3, 2020, I stated that Bitcoin (CCC:BTC-USD) was looking at another run at $20,000 and soon. About a month-and-a-half later, BTC was above $20,000 and never looked back.
- On Dec. 1, 2020, I gave my reason for why crypto assets were about to explode in 2021. While your definition of explosive may be different from mine, I dare say that this characterization was very accurate.
- On Jan. 5, I provided the fundamental argument for why Bitcoin will hit $50,000. Again, about a month-and-a-half later, BTC hit and exceeded $50,000.
Bearish on cryptocurrencies? I’ve been called many names and accused of many things, but when it comes to accusations about being negative on crypto, I don’t want to hear it. There’s more than enough evidence of me directing investors to incredibly profitable opportunities in this space.
However, that doesn’t necessarily mean that I have to like everything about this sector. SOS stock provides a great example. Also, my pensiveness toward the crypto market now doesn’t mean that I’ll feel the same way tomorrow. It depends on multiple variables, including prevailing sentiment.
More importantly, that investors have been ignoring glaring warning signs about SOS stock suggests that speculation overwhelmingly dictates the current market trajectory. In other words, we’ve become divorced from reality. Over time, that tends not to be a good place to park your money.
Plus, you must watch out for the law of diminishing returns. In order to bid up Bitcoin and other hot cryptocurrencies at present levels requires more and more funds. With so many meme stocks competing for everyone’s attention, I’m just not sure if enough technical support exists to prevent a necessary correction.
Addressing Concerns
Finally, let’s talk about the accusations. At first, management said it was preparing “a more detailed response to the false innuendo and lies that are being spread about the company.” In the weeks that followed, SOS released an investor Q&A, and also added a couple videos to its “About” page showing the company’s chief technical officer touring the company’s mining center.
But the jittery trading in the crypto market proper will have me on the sidelines for now.
On the date of publication, Josh Enomoto held a long position in BTC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
