Bitcoin mining firm IREN — formerly known as Iris Energy — saw its shares plummet by 24% on the Nasdaq following a damning report from short seller Culper Research. The report labeled IREN as “wildly overvalued” and criticized its inadequate investment in the AI industry. Culper accused IREN of making grand claims about its high-performance computing (HPC) plans while failing to invest the necessary funds to compete effectively. The short seller’s report likened IREN’s efforts to competing in the Monaco Grand Prix with a Toyota Prius, highlighting a significant disparity between the company’s ambitions and its actual investments.

Culper Research’s Scathing Report

Culper Research, which disclosed its short-selling position on IREN, accused the company of talking a “big game” about its high-performance computing plans while investing far less than what is required. “IREN talks a big game of its HPC plans but ultimately seems entirely disinterested in actually doing what it takes to compete in the space,” claimed Culper in a July 11 short-seller report.

The report highlighted that IREN has spent less than $1 million per megawatt to build its existing center and told investors it will complete a similar HPC center for around the same price. “Meanwhile, leading operators, analysts, and experts all confirm that the true cost to develop an HPC-ready data center is ~$10 to $20 million per MW,” it noted.

Overvaluation Claims

Culper also accused IREN of being “wildly overvalued” and suggested that the company’s stock should be between 52-79% cheaper. The research firm made its case by highlighting IREN’s extremely high enterprise value relative to hash rate on a megawatt basis compared to other publicly-traded miners. “We ascribe $0 to $100 million in value to the Company’s crypto mining operations, which again we feel is generous given that the business has historically burned cash,” Culper said.

Impact of Bitcoin Halving

Culper pointed out that the last Bitcoin halving event “further decimated” miner economics, making it unlikely for IREN to improve its position anytime soon. The report also noted that IREN has failed to fulfill its promises on several occasions, including a commitment to attain a hashrate of 10 exahashes per second by April 2023, when in reality, it only reached 5.5 EH/s by that point.

Insider Selling

The researchers also pointed to insider selling of shares from the firm’s co-CEOs, brothers Daniel and Will Roberts, since February 2024. This insider activity raised further questions about the company’s internal confidence and future prospects.

Historical Context

It’s not the first time Culper has targeted a Bitcoin miner. In January 2021, Culper wrote a short seller report on CleanSpark, another Bitcoin mining firm. CleanSpark hit back a week later, claiming much of the accusations made were “false” and announced at the time it would be investigating the sources of the misrepresentations and the identity of those behind Culper.

Market Reaction

IREN shares fell 24.5% to $10.36 on July 11 before partially recovering to $11.20 when trading hours closed, according to Google Finance data. The company’s market cap now sits at $2.09 billion.

Future Prospects

The future of IREN remains uncertain as the company navigates the fallout from Culper’s report. Investors and industry analysts will be closely watching to see if IREN can address the criticisms and make the necessary investments to compete in the high-performance computing and AI sectors.

Summary

The recent report from Culper Research has cast a shadow over IREN’s future, highlighting significant gaps between the company’s ambitious claims and its actual investments. With shares plummeting and insider selling raising eyebrows, IREN faces an uphill battle to regain investor confidence and prove its worth in the competitive landscape of Bitcoin mining and high-performance computing.

Final Thoughts

As the cryptocurrency and AI industries continue to evolve, companies like IREN must adapt and invest appropriately to stay competitive. The coming months will be crucial for IREN as it seeks to address the criticisms and demonstrate its commitment to achieving its high-performance computing goals. Investors should keep a close eye on the company’s actions and financial health to make informed decisions about their investments.

The author does not own or have any interest in the securities discussed in the article.