Short sellers pile $3bn into Bitcoin miner bets in ‘very squeezable’ trade

[bbc.reporter]

I was shaking my head very vigorously when I was reading this article because this has reminded me of the cloud mining business models that were promoted in the forum and I reckon much of them was a failure. Publicly listed bitcoin mining companies might be something similar, however, without the distribution of bitcoins mined for holders of cloud mining shares.

In any case, will it be correct to compare these publicly listed bitcoin mining companies to be something similar to bitcoin cloud mining companies?



Short sellers are targeting Bitcoin miners.

Short interest on the US Bitcoin mining sector reached $3 billion — up 21% in the last 30 days, according to financial data firm S3 Partners.

Activist investment firm Kerrisdale Capital released a sceptical report on miner Riot Platforms on June 5, sending the shares lower.

“Bitcoin mining is easily among the worst business models for a public company we have ever encountered,” Kerrisdale wrote.

”Riot’s business model is dysfunctional, characterised by seemingly endless capital spending, lack of operating leverage, unpredictable revenue, poor returns, and negative cash flow.”

Among Kerrisdale’s criticisms: Riot has diluted its shares 18% in the first four months of the year — and increased its shares six-fold since 2020.

This stock issuance has allowed the firm to finance its mining operations without dipping into its Bitcoin holdings, now worth north of $600 million, according to Kerrisdale.

But that has come at the expense of its shareholders, the short sellers said.

Read in full https://www.dlnews.com/articles/markets/short-sellers-pile-3bn-into-squeezable-bitcoin-miner-bets/

[el kaka22]

To be fair, they are not entirely wrong because it's being done in a wrong place. Like there were some at Texas, don't know if Riot is there too, but it was simply not possible to cool it easily so they had to spend a lot to cool the systems. So you are spending so much money, and we are after halving as well so they are not making that much, the price did not change all that much and even with that they are making half the bitcoins now as well. When you think about all of that, we could say that it is not a great use of capital, I would have used that capital on something else.

There are some business ideas that are just there for someone to do, but not all, because it's not good. Like starting a restaurant, HORRIBLE business and will most likely lose, 80%+ of all restaurants close after only 2 years of being in business, and yet someone has to do it or we won't have any restaurants in the world; bitcoin mining is not having any big differences in my opinion.

[d5000]

Interesting thought. On the surface, the model - you invest in "something" which gives you a "share" of the mining revenue of a "really existing mining operation", with the chance that you're investing in a ponzi, looks indeed a bit similar.

But I think the real problem why cloud mining failed is that there were so many "providers" which turned out to be outright scams and that it is so difficult to prove if they deliver what they promise, as they were basically unregulated. I wonder if there is any way to technically prove that you're participating in a real mining process when you don't have real access to a Bitcoin node (or mining software) but only to a web interface. Even if this interface looks and feels like a Bitcoin node interface everything could be faked.

In the case of publicly listed mining companies, while this danger (the company not sharing the "real" numbers) still exists, I think it is various orders of magnitude lower due to all the investor protection measures regulated public companies have to comply with, and the consequences they face when they provide fake info.

The passage marked in yellow about Riot's share dilution looks of course bad for shareholders, but this information is completely public, so everybody considering buying Riot shares knows about it if they do a little bit of research. If Riot wants to continue its business in a sustainable way, they shouldn't do that too often or their share will drop to unsustainable levels (and this is valid for all public companies, not only for miners). I guess their move could be related to the halving this year, trying to get a little bit more margin for that event, but it can't be sustained in time. These shorts should be seen as a warning for Riot to not abuse that method.

And in general I think "publicly traded" is not a bad model for miners per se. You could argue that miners' cashflows are in some manner "capped" due to the limited block reward, but as an individual company you can grow your market share and thus their share can grow, and once having stabilized it can switch to a dividend-based model. Riot had about 5% market share in 2023 (it produced 6600 BTC from the 328000 available ones), so it still has room to grow, and thus a share dilution can sometimes be justified.

[darewaller]

I am sure that it will be squeezed soon enough, we should be thinking that when there is a big whale side right here, we can't just think that it is always against the retail investors, there is probably another big whale group on the other side as well. So, if we have 3 billion at short, then the ones who will squeeze it will be of course a bit of retail investors, but also some other big whales as well.

A lot of people ignore that part, and I think that part is quite important, we can't just do it all by yourselves, it is requiring of so much money and I think we should probably consider how to grow better and bigger. This doesn't mean that we are going to end up with something huge, it just means that we are going to end up with smaller trouble.

[stompix]

The passage marked in yellow about Riot's share dilution looks of course bad for shareholders, but this information is completely public, so everybody considering buying Riot shares knows about it if they do a little bit of research. If Riot wants to continue its business in a sustainable way, they shouldn't do that too often or their share will drop to unsustainable levels (and this is valid for all public companies, not only for miners). I guess their move could be related to the halving this year, trying to get a little bit more margin for that event, but it can't be sustained in time. These shorts should be seen as a warning for Riot to not abuse that method.

Riot business is not sustainable the way they ran it.
They managed to get through 2023 only because of the price rise at the end and because of the millions gained from the ERCOT deal about the power credits, they still operated at a loss that year but they managed to cut it down, right now even with the price up the reward was halved, the electricity credits will no longer work like that since the plans have changed the tax abatement are no longer in place so...

Riot has grown insanely on borrowed money, they keep on borrowing and they haven't really delivered on the expectations, as others are saying in the mining speculation board, it's probably a game on which of the big guys will collapse first and let the others breathe

[bbc.reporter]

Interesting thought. On the surface, the model - you invest in "something" which gives you a "share" of the mining revenue of a "really existing mining operation", with the chance that you're investing in a ponzi, looks indeed a bit similar.

But I think the real problem why cloud mining failed is that there were so many "providers" which turned out to be outright scams and that it is so difficult to prove if they deliver what they promise, as they were basically unregulated. I wonder if there is any way to technically prove that you're participating in a real mining process when you don't have real access to a Bitcoin node (or mining software) but only to a web interface. Even if this interface looks and feels like a Bitcoin node interface everything could be faked.

In the case of publicly listed mining companies, while this danger (the company not sharing the "real" numbers) still exists, I think it is various orders of magnitude lower due to all the investor protection measures regulated public companies have to comply with, and the consequences they face when they provide fake info.

The passage marked in yellow about Riot's share dilution looks of course bad for shareholders, but this information is completely public, so everybody considering buying Riot shares knows about it if they do a little bit of research. If Riot wants to continue its business in a sustainable way, they shouldn't do that too often or their share will drop to unsustainable levels (and this is valid for all public companies, not only for miners). I guess their move could be related to the halving this year, trying to get a little bit more margin for that event, but it can't be sustained in time. These shorts should be seen as a warning for Riot to not abuse that method.

And in general I think "publicly traded" is not a bad model for miners per se. You could argue that miners' cashflows are in some manner "capped" due to the limited block reward, but as an individual company you can grow your market share and thus their share can grow, and once having stabilized it can switch to a dividend-based model. Riot had about 5% market share in 2023 (it produced 6600 BTC from the 328000 available ones), so it still has room to grow, and thus a share dilution can sometimes be justified.

I am not speculating about this on the basis that certain cloudmining operations were scams. I was only speculating it from the basis that if each share on a cloudmining company is sustainably profitable for many years or not, considering difficulty increases in bitcoin mining. I reckon it would be very much difficult for miners to maintain profitability without upgrading and increasing their equipment and this certainly is only possible if they increase the investment spent on their operation.
 
Cloudmining companies increase the investment spent by issuing new shares. Bitcoin mining companies listed in the stock market also increase the investment spent by issuing new shares hehehehe.

Also, on these types of investment, the investors should count their investments in bitcoin spent on these shares and they should breakeven in bitcoin.