2024

Wednesday

Bitcoin

ENERGY

Investment firm Kerrisdale Capital is launching “a war against Bitcoin miners,” calling them an “industry of snake oil salesmen.” In response, mining firms have mostly declined to comment.
Kerrisdale’s thesis <a href="https://x.com/KerrisdaleCap/status/1798346114279911575" target="_blank" rel="noopener nofollow">coincides</a> with its latest investment report, which <a href="https://www.kerrisdalecap.com/wp-content/uploads/2024/06/RIOT-Kerrisdale.pdf" target="_blank" rel="noopener nofollow">claims</a> Riot Platforms is “headed for a mine collapse.” 
Cointelegraph spoke with Sahm Adrangi, CEO of Kerrisdale Capital, to better understand Kerrisdale’s claims.
“When you don’t have a viable business model — and we see this in the public markets all the time — if you’ve got a business that you know is structurally unprofitable, these companies dilute,” said Adrangi. “They issue shares, they take those shares to invest in the business. But there are no returns.”
Kerrisdale reports that Riot issued $41 million in shares in just the first four months of 2024, representing an 18% stock dilution.
“These are not viable business models. The [United States mining] businesses are structurally screwed — the industry is one of the worst I’ve ever seen,” said Adrangi.
Kerrisdale is shorting Riot.
<h2 data-ct-non-breakable="true" id="riot-refutes-claims-industry-demurs">Riot refutes claims, industry demurs</h2>
A Riot spokesperson issued a statement to Cointelegraph in the wake of Kerrisdale’s report. The company strongly refutes Kerrisdale’s claims:
“We disagree with the characterization of the Bitcoin mining industry and of Riot, and the equally unsound conclusions reached in the Kerrisdale Capital report,” said a Riot spokesperson. “We believe these errors will be demonstrated through the execution of our ambitious 2024 growth plans and resulting financial performance.”
Cointelegraph contacted a number of U.S. Bitcoin (<a href="https://cointelegraph.com/bitcoin-price">BTC</a>) mining firms regarding the report. Despite our invitation to defend the industry, all were unavailable or simply declined to comment.
To gain an alternative perspective to Adrangi, Cointelegraph spoke with William Foxley of The Mining Pod, which bills itself as the #1 podcast in Bitcoin mining.
“Bitcoin mining in the U.S. is incredibly bullish, especially with another Trump presidency. Not only are the political winds shifting in favor of energy production, but Bitcoin miners might enjoy special protections if they can continue to work with the Trump administration,” said Foxley.
Foxley, an industry insider who has worked in Bitcoin mining for the last four years, including at Bitcoin mining firm Compass, says the industry’s future success is not tied to former President Donald Trump’s electoral fortunes. 
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 “Even if Trump loses, Bitcoin miners are protected by states like Texas and Tennessee that court Bitcoin miners.”
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Foxley went on to say, “It’s likely a bad time to short Bitcoin mining,” concluding that, “While Bitcoin miners do often use a lot of [share issuance] to fund development, there’s good precedent for using such a technique depending on the firm’s execution.”
<h2 data-ct-non-breakable="true" id="the-backlash-against-u-s-bitcoin-mining">The backlash against U.S. Bitcoin mining</h2>
According to Kerrisdale, U.S. Bitcoin miners were initially attracted to Texas due to “cheap energy and a lax regulatory environment,” but now they say “the honeymoon is over.”
“The Texas energy policy with respect to Bitcoin mining makes no sense,” Adrangi told Cointelegraph. “This whole idea that these Bitcoin miners are good for the grid. It’s such a tortured thought process, and I can’t believe people actually buy into it. Bitcoin miners are using a lot of energy. Their usage[..] is what strains the system.”
The Kerrisdale report points to a recent decision in Navarro County as evidence the tide is turning against miners. 
On March 11, commissioners voted against a tax reduction for Riot’s key growth project in Corsicana. Riot says the expansion would result in millions of dollars of investment and create hundreds of jobs.
However, legislators are increasingly wary of approving such preferential tax conditions for the industry.
Recent: <a href="https://cointelegraph.com/news/bitcoin-money-ethics-fiat">Bitcoin is no ‘silver bullet’ for money’s ethical problems</a>
Texans are braced for another summer of high energy prices as temperatures soar and air conditioning units kick in. In April, The Dallas Morning News <a href="https://archive.ph/l06Nf" target="_blank" rel="noopener nofollow">reported</a> that energy was selling at an 82% premium over 2023.
In this context, the energy and water consumption of Bitcoin miners is angering some Texas residents.
Pressure groups such as the Texas Coalition Against Cryptomining <a href="https://x.com/CCofNavarro/status/1720578119386423683" target="_blank" rel="noopener nofollow">say</a> U.S. mining companies, including Riot, “squander insane amounts of energy and drive up every Texan’s electricity bills.”
The issue is far from a closed book, however, and Riot is expected to request further abatements.
<h2 data-ct-non-breakable="true" id="kerrisdale-contacts-officials">Kerrisdale contacts officials</h2>
Kerrisdale Capital’s report into the U.S. Bitcoin mining industry is not the only step the firm has taken.
Kerrisdale also reached out to state legislators to recommend against approving any future abatement request from Riot.
Cointelegraph asked Adrangi why this was necessary, who told us it was because “the whole industry should be kicked out of the U.S., just like it was kicked out of China.”
In a letter addressed to a Navarro county judge and commissioners, Kerrisdale <a href="https://www.kerrisdalecap.com/wp-content/uploads/2024/06/Letter-to-Commissioners.pdf" target="_blank" rel="noopener nofollow">cites</a> the case of a former worker who said Riot’s Rockdale facility was not safe for workers.
“There was dielectric fluid all over the place, all over the ground… I mean, this stuff is flammable, this is not good stuff to breathe in,” the employee told Kerrisdale.
“You know you’re slippin and sliddin [sic] around on dielectric fluid in the middle of an electrical bomb. That’s really what the job was and there wasn’t a lot of safety protocols there,” the employee said.
Kerrisdale also accuses Riot of using an ExxonMobile product, Spectrasyn 2C, for cooling its immersion miners — a product not specifically approved by ExxonMobile for such usage.
Kerrisdale states: “We believe Riot used Spectrasyn 2C at Rockdale because as a first mover in large-scale immersion-cooled Bitcoin mining, it did not have as many safe, non-toxic, and cost-effective immersion fluids as there are on the market now.” 
Kerrisdale hopes these points will give legislators pause in the face of further abatement requests.
<h2 data-ct-non-breakable="true" id="kerrisdale-s-impact-unclear">Kerrisdale’s impact unclear</h2>
Kerrisdale’s report led to a significant drop in Riot stock on June 5. Its stock price fell by 8.9% on Wednesday to $9.65.
Since then, however, the stock has risen once more. For the past month, Riot stock has ranged from a low of $9.50 to a high of $10.96.
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At the time of writing, Riot’s stock was around the $10 mark, suggesting the company may have weathered the worst of the impact, at least in the short term.
<h2 data-ct-non-breakable="true" id="riot-s-trump-card">Riot’s Trump card?</h2>
Kerrisdale has made its case to the market and Texas legislators, but Riot is making its own case to Trump.
Recent:&nbsp;<a href="https://cointelegraph.com/news/us-stablecoin-bill-biden-veto">Stablecoin act gives Congress alternative to overriding Biden’s SAB 121 veto</a>
Following a meeting with Riot CEO Jason Les and Riot’s head of public policy, Brian Morgenstern, Trump issued a statement strongly favoring the industry while raising the specter of a U.S. central bank digital currency (CBDC).&nbsp;
In a June 12 post to TruthSocial, Trump <a href="https://truthsocial.com/@realDonaldTrump" target="_blank" rel="noopener nofollow">said</a>,&nbsp;“Bitcoin mining may be our last line of defense against a CBDC. Biden’s hatred of Bitcoin only helps China, Russia, and the Radical Communist Left. We want all the remaining Bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT!!!”
Cointelegraph asked Adrangi whether Trump’s support might alter his assessment of Bitcoin mining, but Adrangi was less than impressed by the former president’s intervention.
“Well, you know, Trump says a lot of things,” Adrangi said.

US Bitcoin miners silent in face of Kerrisdale ‘snake oil’ claims

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