After falling by over 9 percent in the first hour of trade on the heels of a devastating report from short seller Kerrisdale Capital, Riot shares rallied.
Short seller Kerrisdale Capital’s aggressively worded report on June 5 claimed that Bitcoin miners are selling “snake oil” and that Riot Platforms Inc (RIOT) will fail. Despite a large drop in share price, the company’s stock eventually rebounded.
To generate shareholder value via cryptocurrency mining, Kerrisdale said in a June 5 study that Riot “does a significantly better job playing energy arbitrage games and issuing shares.”
The corporation also said in a related X post that it was beginning “a fight against Bitcoin miners, an industry of snake oil merchants.” It went on record as being long Bitcoin, a wager that its price would increase, but short the firm.
In the opening hour of trading on June 5, RIOT shares recovered from a 9.6% dip to $8.84, but they completed the day down 0.21% at $9.65. The news broke around two minutes before the Nasdaq market began.
In after-hours trade, it has fallen 0.73 percent to $9.58, according to Google Finance. Riot strongly disagreed with Kerrisdale’s “characterization of the Bitcoin mining business and of Riot, and the similarly flawed conclusions made in the Kerrisdale Capital study,” according to a spokesman who talked with Cointelegraph on behalf of Riot.
“Our ambitious development objectives for 2024 and the financial performance that follows will show these mistakes, we are certain of it.”
The crux of Kerrisdale’s short bid thesis is the following: “Riot is burning through capital.” Meaning, the company is allegedly “looting retail shareholders via non-stop dilution.”
The article said that since 2020, Riot’s share outstanding has increased sixfold due to the company’s practice of issuing stocks at market price to finance its activities.
Riot would have to start spending its cash and Bitcoin assets if it stopped issuing shares, the business said.
Crypto mining is facing a number of challenges, including more scrutiny from Texas officials, falling profits due to Bitcoin’s halving, and a worldwide competition for mining market share from more cost-effective rivals.
Kerrisdale said that RIOT was once a “Bitcoin proxy” but that it now faces competition from “many low-fee” Bitcoin ETFs.
The business posed the question, “Why not just own Bitcoin itself?” in contrast to Riot, which has seen a steady reduction in Bitcoin holdings per share and Bitcoin output per share.
“In the grand scheme of things, stockholders will come to regret not just purchasing Bitcoin when they realize that the company’s real character is that of a simple manufacturer whose only competitive edge is the capacity to produce more stock on demand.”
Cointelegraph Markets Pro reports that Bitcoin’s price has increased by 0.4% in the last 24 hours, reaching $71,022.
Similarly, on March 28, Kerrisdale attacked Bitcoin-holding business MicroStrategy (MSTR), arguing that Bitcoin ETFs were a superior way to get exposure to the cryptocurrency.
According to Google Finance, MSTR has gained more than 147% so far this year, while ending at $1,694.69 today, down just around 0.58% from the report’s closing price of $1704.56.
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