Crypto News Today- Bitcoin Miners Attract $3B from Short Sellers in Potentially ‘Squeezable’ Trade
Crypto News– Short sellers are increasingly targeting Bitcoin miners. According to financial data firm S3 Partners, short interest in the U.S. Bitcoin mining sector has surged to $3 billion, marking a 21% increase over the past 30 days.
The Bitcoin mining stock sector is very crowded on the short side relative to the U.S. market, Ihor Dusaniwsky, managing director at S3, told DL News. He explained that the high level of short interest makes these stocks very squeezable. This means that if the stock prices start to rise, short sellers might rush to buy back shares to cover their positions, potentially driving prices even higher.
Despite the potential for a squeeze, short sellers are currently performing well. Since the beginning of the year, they have seen gains of about 15%, translating to roughly $350 million in profits.
The most profitable shorts so far have been in Riot Platforms and Marathon Digital, two of the largest Bitcoin mining companies.
‘Dysfunctional’
On June 5, activist investment firm Kerrisdale Capital released a critical report on Riot Platforms, causing the company’s shares to decline. In their report, Kerrisdale expressed strong skepticism about the viability of Riot’s business model.
Bitcoin mining is easily among the worst business models for a public company we have ever encountered, Kerrisdale stated. They described Riot’s business model as dysfunctional, pointing to issues such as continuous capital spending, lack of operating leverage, unpredictable revenue, poor returns, and negative cash flow.
One of the key criticisms from Kerrisdale was Riot’s significant share dilution. The firm has diluted its shares by 18% in just the first four months of this year and has increased its share count six-fold since 2020.
This stock issuance strategy has allowed Riot to finance its mining operations without needing to sell its Bitcoin holdings, which are valued at over $600 million, according to Kerrisdale. However, this approach has come at the expense of shareholders, who have seen their ownership stakes significantly diluted, according to the short sellers.
Risky bets
Shorting cryptocurrencies—and stocks in general—comes with significant risks. Regardless of whether Kerrisdale’s analysis holds true, mining stocks might still rise if Bitcoin reaches new all-time highs, similar to the surges seen in 2021 and 2017.
Interest in fundamental stock pickers has waned, noted legendary short-seller Jim Chanos in November. Chanos, who has made a name for himself in the short-selling world, closed his fund after betting against Coinbase, a stock that has soared 383% over the past 12 months. This underscores the inherent unpredictability and potential for rapid gains within the cryptocurrency sector, which can make short positions particularly precarious.
FAQs
What impact did Kerrisdale Capital’s report have on Riot Platforms?
Kerrisdale Capital’s skeptical report on Riot Platforms led to a decline in the company’s share price. The report criticized Riot’s business model and highlighted significant issues such as continuous capital spending, share dilution, and negative cash flow.
Why are short sellers interested in Bitcoin miners?
Short sellers are interested in Bitcoin miners because they perceive these companies as having vulnerabilities such as high capital expenditure, unpredictable revenue, poor returns, and negative cash flow. These factors make Bitcoin miners potentially lucrative targets for short selling.
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