US Investment Firm Declares 'War Against Bitcoin Miners'

Kerrisdale Capital, a US investment firm, set off a storm of reactions on Wednesday with a series of public communications aggressively targeting Bitcoin mining companies. In a multi-part thread on X, Kerrisdale announced its campaign against what it describes as “snake oil salesmen” in the BTC mining industry, accusing them of being both a financial sinkhole and an environmental hazard.

“Today, we launch a war against Bitcoin miners, an industry of snake oil salesmen that are incinerating both investor capital and the environment and should be banished from America much like the Chinese RTO frauds that we helped kick out a decade ago,” the firm declared.

Kerrisdale also revealed it had begun by sending letters to officials in Texas, including the Navarro City Commission and state senators, outlining their grievances and calling for regulatory action. Additionally, the firm disclosed its financial position, stating, “We’re short RIOT (and long Bitcoin as a hedge).”

Kerrisdale’s critique centers on the business model of RIOT Blockchain, which it argues is inherently flawed: “Like other US listed miners, RIOT’s biz model is a dysfunctional hamster wheel of cash burn, which is why it loots retail shareholders with non-stop ATM issuance to fund operations.” They pointed out that despite BTC’s high market prices, RIOT’s post-halving operations have not been profitable.

Further financial analysis from Kerrisdale highlighted that RIOT has issued $2.3 billion in stock since 2020, which has led to a sixfold increase in shares outstanding to fund $1.6 billion in cash burn. According to Kerrisdale, this has not corresponded with an increase in Bitcoin production per share or BTC holdings per share, leading them to conclude that the only benefit to shareholders would come from rising Bitcoin prices—a strategy they deemed insufficient for investment.

On the environmental front, Kerrisdale criticized Bitcoin mining for its heavy energy use and reliance on incentives that may not align with broader environmental goals. “RIOT’s economics would look even worse without generous grid incentives and tax credits,” the firm argued, noting that such benefits are being questioned by regulators and might not persist.

The Bitcoin Mining Industry And Experts Responds

The industry response was quick, with several prominent figures defending the sector and attacking Kerrisdale’s motives and understanding of the space. Daniel Batten, founder of CH4 Capital and advisory board member at Bitcoin mining giant Marathon, suggested Kerrisdale should focus more on enhancing investor returns rather than attacking industry practices.

Respectfully, perhaps you should redeploy some of that enthusiasm (and focus) to increasing investor returns? pic.twitter.com/2HR3hVFztw

— Daniel Batten (@DSBatten) June 6, 2024

Adam O of Upstream Data defended Bitcoin mining’s environmental impact, stating, “Good luck vilifying that which improves all stakeholders, reduces waste, and reduces methane emissions. Dumbest mission of the decade.” Steven Lubka, Head of Private Clients & Family Offices at Swan Bitcoin, criticized Kerrisdale’s strategy and pointed to the failing MicroStrategy (MSTR) short position which they entered two months ago as well as their declining assets under management as a sign of deeper issues within the firm itself.

“Let’s take a look at these absolute losers crying for the government to rescue their MSTR short by FUD’ing mining. […] Now let’s take a look at their AUM. $318m as of this quarter, let’s see where they were a few years ago? $1.3 billion. That’s a big drop in their total AUM/invested amount. In conclusion, they are trying to save their fund because they know MSTR is about to rip higher by appealing to the government.”

The debate also extended to the environmental merits of Bitcoin mining. Simon Dixon, an angel investor, presented facts debunking the myth that Bitcoin mining is predominantly harmful to the environment. He highlighted the role of Bitcoin mining in methane emission mitigation and its synergies with renewable energy sources such as solar and wind, as well as the ability to help balance the grid.