Upside for SOS Seems Limited As China Bans Crypto

Easily the most controversial country over the past year-and-a-half period, China is again making waves. This time, it has taken on the cryptocurrency phenomenon, banning its transactions and its mining operations. Unfortunately, that puts SOS Ltd (NYSE:SOS) stock in quite a bind.

Its own government is enemy No. 1. As a result, unless some miracle materializes, it’s difficult to trust SOS stock.

Now, there’s something to be said about too many people group-thinking their way to an obvious conclusion. For instance, in the beginning of September and prior to the draconian China crackdown, InvestorPlace contributor David Moadel laid down the case for why he felt uneasy about SOS stock. Namely, he began seeing too many red flags pop up against the issuing company.

Further, he noted several of my InvestorPlace colleagues taking the blockchain miner to task, from its unfocused business model to its opaque website to financial results and operational data that seem to suggest a devastating shutdown. Yet that the company continues to project an image that nothing’s out of the ordinary adds even more skepticism toward SOS stock.

Again, Moadel’s article was published on the first of September, before China started to get serious with its draconian crypto crackdown. As you probably heard, the communist government has long played coy with its ironically burgeoning crypto industry. In public, it derided virtual currencies yet let the digital ecosystem more or less expand.

But that’s no longer the case, according to a Wired article. On Sept. 24, Beijing declared all crypto transactions illegal and outlawed blockchain mining. Experts stated that this time, the ban is sweeping and absolute.

Obviously, that’s good news (in a very cynical sense) for non-China-based mining operations. But for SOS stock? I just don’t know what else to say other than to avoid it.

Nowhere to Run for SOS Stock

If you’ve never attracted the ire of a Chinese enterprise, you’re missing out on one of life’s profoundly unpleasant experiences that don’t involve physical assault. Having gotten an earful already about SOS stock, I’m not about to kick this hornet’s nest.

Fortunately, my colleague Mark Hake apparently loves hornets. In mid-September – again, before the crackdown – he bluntly stated that the revenue numbers “literally” don’t add up for the mining firm. Drilling into the financials, he states that he found some discrepancies regarding claims toward commodity profits. Long story short, he couldn’t find confirmation about SOS’ rosy claims.

Hake has been one of the pit bulls aggressively hunting down this company, making some very powerful assertions that not all is well with SOS stock. Finally, with the China crackdown, I believe it’s safe to say that his analytical nose has once again uncovered the dirt. There’s no there there, as many analysts love to say.

To be fair, an opportunity exists for the company to shift its operations to Kazakhstan. Per The Jamestown Foundation, on June 25 of this year, “Kazakhstani President Kassym-Zhomart Tokaev signed legislation officially legalizing crypto-mining in Kazakhstan. As part of this law, Kazakhstan introduced a new tax, stipulating a fee of one tenge per 1 kilowatt-hour (kW/h) for miners, starting on January 1, 2022.”

It’s the opposite situation of China. Indeed, when China earlier applied negative policies toward cryptos, analysts viewed Kazakhstan as a key beneficiary. But will the Central Asian country come to the rescue this time?

Obviously, Kazakhstan is hoping that it will attract more entrepreneurs – more tax revenue for its government. But setting up shop in another country isn’t an easy task. Plus, SOS will face a new level of competition that it previously never had to deal with.

Just Go with the Obvious

Going back to my earlier point, I totally get the fear of groupthink. Heck, I was the one that warned people that just because Workhorse Group (NASDAQ:WKHS) had the only electric-powered solution for the U.S. Postal Service’s bid to replace its aging mail carrier fleet, it wasn’t a shoo-in for the contract.

That was pure groupthink, causing people to overemphasize one aspect of the race and ignore others. I know groupthink because I’ve called it out in the past. I don’t think SOS stock is groupthink.

Now, before I get an earful from the audience, please note that I’m not the arbiter of all things. What I’m saying is that when you have an overabundance of particularly bad news – and then later, the company does nothing to assuage those concerns – there’s probably at least some truth to the pessimism.

What worries me about SOS stock in light of the China crackdown, though, is that we could be talking about a situation where all the bad news is legitimate. Normally, I’d caveat my take with an if-you-want-to narrative. Not with this.

You’re likely best off avoiding it.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.