With cryptos bouncing back, mining plays like SOS Limited (NYSE:SOS) stock are coming back into the spotlight. But are shares in the China-based crypto mining company the way to play a possible continued recovery for Bitcoin (CCC:BTC-USD)? Not so fast.
Even before the crypto meltdown in May, SOS appeared to be the riskiest of the bunch. With reports from short-sellers alleging not everything was on the up-and-up, it did not appear to be a great opportunity.
Flash forward to now, and this remains the case. Not only that, the added headwind of China’s regulatory crackdown on crypto mining is now weighing it down as well. With this in mind, it makes sense shares in this miner haven’t bounced back in the same way rivals Marathon Digital (NASDAQ:MARA), Riot Blockchain (NASDAQ:RIOT), and Support.com (NASDAQ:SPRT) have in recent weeks.
These peers may have their own respective risks. Yet not to the extent seen with this name. If you’re looking to bet on a comeback for cryptocurrency miners? Look at other opportunities (especially one discussed in detail below), but steer clear of this one.
The Bear Case for SOS Stock is Open-and-Shut
As mentioned above, even during the crypto bubble, this was one of the sketchier crypto mining plays. There are many general concerns with names in this space. These include the capital-intensive nature of it, along with things like Bitcoin price uncertainty, as well as long-term issues like rising network difficulty.
But unlike the three aforementioned peers, SOS stock has had, and will continue to have, other risks atop it. The largest concern about it in the past was the allegations made by two vocal short-sellers, Culper Research and Hindenburg Research, back in February. In their respective “short reports,” both pointed out the details about the company’s mining operations were murky at best.
In the past six months, has SOS done much to assuage these concerns? To some extent, as the company released a Q&A response tackling the main allegations. But while it’s released more information in some areas, it’s still being close-to-the-vest when it comes to other areas. As InvestorPlace’s Mark Hake recently wrote, it continues to offer limited information about its current financials.
This is especially concerning, as it makes it tough to assess whether the third issue plaguing SOS, the “China crypto crackdown,” will threaten the viability of its business. With so many more concerns than the other crypto mining stocks, the bear case for it is pretty open-and-shut. That’s why investors looking at this sector should stick to the other names out there.
Other Crypto Mining Plays May be Worth The Risk
Putting it simply, SOS stock is a crypto mining play you shouldn’t bother with. If that’s the case, what’s the best alternative to owning it? I’ve previously been critical of both Marathon Digital and Riot Blockchain. Mainly, due to crypto stocks appearing more risky than owning crypto itself. Factors like operating leverage may mean outsized returns if Bitcoin is trending up. Yet if BTC is trending down? Like a double-edged sword, these names are more at risk of outsized sell-offs.
There is, however, one crypto mining play that appears to be one where the stars are aligned for investors. That would be Support.com stock. The name may throw you off. But that’s because the customer/technical support provider is being used to take privately-held Greenidge Generation public.
Once the reverse merger completes, it will become a crypto mining play. In anticipation, investors have already bid it up aggressively. Before the deal announcement, it traded for around $2.15 per share. After the deal news? It initially popped, going to as much as $9.45 per share. It’s been on a roller coaster ride due to the turmoil hitting the cryptocurrency market. Yet with BTC’s rebound, it’s back to around $7 per share.
Even as it makes its way back toward its 52-week high, it may be worth a look. Not only is it well-positioned compared to other miners (for example, it owns its own power source), the terms of the deal are favorable to existing shareholders of SPRT stock. It may too have to contend with the general risks inherent with blockchain mining. But instead of more red flags on top of it (as seen with SOS), it instead has more pointing to its continued success.
Bottom Line: In So Many Words, Stay Away
It’s still unclear whether a full crypto comeback is in the cards. But even if you’re bullish that not even things like increased U.S. tax reporting requirements, and the China crypto crackdown will sink it further, this particular mining stock isn’t the way to play it.
With its more numerous risks compared to similar plays, stay away from SOS stock, and stick with stronger plays, like SPRT stock, instead.
On the date of publication, Thomas Niel held a long position in Bitcoin. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.