{"id":1470281,"date":"2024-06-09T13:20:00","date_gmt":"2024-06-09T17:20:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1470281"},"modified":"2024-06-09T13:20:00","modified_gmt":"2024-06-09T17:20:00","slug":"betting-big-that-bitcoin-mining-wont-exist-in-five-years","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/betting-big-that-bitcoin-mining-wont-exist-in-five-years\/1470281\/","title":{"rendered":"Betting Big That Bitcoin Mining Won’t Exist In Five Years…?"},"content":{"rendered":"

Betting Big That Bitcoin Mining Won’t Exist In Five Years…?<\/span><\/p>\n

\n

Authored by Mark Jeftovic via BombThrower.com,<\/em><\/a><\/p>\n

Long Bitcoin \/ Short Miners Is The Mid-Curve Trade of the Year<\/h2>\n

I\u2019ve never understood the hedgies\u2019 penchant for pair trades: long\u00a0this<\/em>\u00a0\/ short\u00a0that<\/em>\u00a0is supposed to be some kind of big brain move that either outperforms something or hedges out the risk \u2013 like I said, I don\u2019t always grok them, maybe because I don\u2019t have an MBA in finance.<\/p>\n

To be clear, when I see one I usually do understand the overall\u00a0thesis\u00a0<\/em>\u2013 what I don\u2019t understand is the way they\u00a0seem\u00a0<\/em>to put an upside ceiling on returns if you\u2019re right. It probably makes sense to do this when you manage other people\u2019s money.<\/p>\n

But a TradFi firm called\u00a0Kerrisdale Capital<\/strong>\u00a0has a pair trade on that, may seem counter-intuitive at first glance.<\/p>\n

It\u2019s long Bitcoin, and short miners \u2013 specifically\u00a0RIOT Blockchain (Nasdaq: RIOT)<\/strong><\/a>.<\/p>\n

They have a separate trade on that\u2019s\u00a0short\u00a0MicroStrategy (Nasdaq: MSTR)<\/strong>, also long Bitcoin<\/a>.<\/p>\n

The long Bitcoin half of each trade, according to their\u00a0pinned tweet<\/a>, is a hedge. The short side is against MicroStrategy for being an inferior proxy to Bitcoin, especially now that ETFs are here, and in Riot\u2019s case? Well they\u2019ve declared\u00a0war\u00a0<\/em>on Bitcoin mining:<\/p>\n

\u201cOur investment thesis is that this sector is not going to be around in five years.\u00a0Bitcoin mining is one of the stupidest business models we\u2019ve come across in our time short selling over the past 15 years.\u201d
\n\u2014\u00a0Kerrisdale Capital CIO Sahm Andrangi<\/a><\/em><\/p>\n

Today, we launch a war against bitcoin miners, an industry of snake oil salesmen that are incinerating both investor capital and the environment and should be banished from America much like the Chinese RTO frauds that we helped kick out a decade ago (1\/10)<\/p>\n

\u2014 Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024<\/a><\/p>\n

One of the cornerstones of Kerrisdale\u2019s short thesis is that MSTR (and the miners) go up more than Bitcoin when there is no reason for them to. Especially now that the spot ETFs are here, both the miners and MSTR are inferior proxies to Bitcoin.<\/p>\n

If they\u2019re right<\/strong>\u00a0\u2013 miners go to zero,\u00a0so will Bitcoin<\/em>\u00a0\u2013 I assume they make more money on the RIOT (and MSTR) shorts than they lose on the Bitcoin.<\/p>\n

If they\u2019re wrong<\/strong>\u00a0\u2013 and the miners and MSTR continue to outperform Bitcoin, they will get destroyed on their shorts, while the upside from their hedge \u2013 Bitcoin,\u00a0 by their own thesis, is going to lag (this is the part of the pair trade I\u2019m having issues understanding, unless maybe they\u2019re levering up?).<\/p>\n

I think what\u2019s confusing me is that the side of their pair trade that means they\u2019re right already has limited upside. Shorts can only go to zero, your upside is capped at 100%, unless you\u2019re using leverage to enhance that \u2013 in which case you\u2019re risk is even higher.<\/p>\n

What makes more sense to me is that if you\u2019re going to put on a pair trade, you do it with unlimited upside on being right and with the hedge for being wrong on the downside. Kerrisdale seems to have it backwards,\u00a0 especially because we\u2019re dealing with\u00a0Bitcoin \u2013\u00a0<\/em>the highest performing asset\u00a0in history.<\/em><\/p>\n

Bitcoin mining is one of the worst biz models we have ever seen: capital intensive, extremely competitive, a pure commodity product & now drawing intense regulatory scrutiny. With bitcoin ETFs abundant, there\u2019s no reason to own these dismal businesses as bitcoin proxies 4\/10<\/p>\n

\u2014 Kerrisdale Capital (TradFi) (@KerrisdaleCap) June 5, 2024<\/a><\/p>\n

They\u2019re not wrong.<\/p>\n

Even Saifedean Ammous \u2013 author of seminal book\u00a0The Bitcoin Standard<\/a>\u00a0has said that\u00a0Bitcoin mining has got to be one of the worst businesses out there<\/a>\u00a0(and points out that the same has always applied to gold miners).<\/p>\n

So why would anybody in their right mind hold shares in a Bitcoin miner?<\/p>\n

Three Ways Bitcoin Miners Fund Their Operations<\/strong><\/h2>\n

There are three ways for mining companies to fund themselves and make a return for shareholder:<\/p>\n

#1) Sell the Bitcoin as you mine it.<\/h2>\n

Especially in a bull cycle when the price is constantly going up \u2013 and knowing that the block rewards are going to halve within four years, makes a certain amount of sense.<\/p>\n

Core Scientific (Nasdaq:CORZ) is an example of a public miner that does this.<\/p>\n

Most miners don\u2019t do that however (unless circumstances force them too), especially among the publicly traded miners \u2013 the name of the game is HODL! Stack those sats and pile up as many as possible.<\/p>\n

If you\u2019re HODL-ing your BTC and it takes operations like this:<\/p>\n

<\/a><\/p>\n

\u2026in order to mine them.<\/p>\n

That must mean you are looking further down the road than next quarter\u00a0(hold that thought).<\/em><\/p>\n

The other two ways:<\/p>\n

Funding method #2) Take on debt<\/h2>\n

The mining game is a never-ending struggle to grow one\u2019s hashpower at a rate faster than the overall network is growing, and if you thought the price action of Bitcoin was nuts, just try to wrap your head around the hashrate \ud83d\udc47<\/p>\n

<\/a><\/p>\n

As I reported previously in\u00a0The Bitcoin Halving Crash Course<\/a>, this pencils out to in excess of 600\u00a0million<\/em>\u00a0trillion<\/strong>\u00a0computations\u00a0per second.<\/em><\/p>\n

That leaves mining outfits competing to acquire: more ASICs (specialty miners that crunch the calculations), power, and datacenters.<\/p>\n

And while critics \u2013 including Kerrisdale \u2013 argue that this is a monumental waste of resources and energy to maintain a decentralized, non-state monetary network\u2026<\/p>\n

<\/a><\/p>\n

\u2026it\u2019s actually quite a bit more benevolent, not to mention\u00a0civilized<\/em>, compared to the energy and resources it takes to enforce a fiat dollar standard.<\/p>\n

Taking on debt works fine in an up cycle, especially when interest rates are squashed through the floor. But when crypto winter hits \u2013 look out.<\/p>\n

Many of the miners who levered up (BITF, CBIT) had to sell down their HODL in order to survive it \u2013 and do so at depressed prices.<\/p>\n

Funding method #3: issue shares (dilute, dilute, dilute\u2026)<\/h2>\n

What may look more appealing than debt, is to issue shares.<\/p>\n

You can do that provided Bitcoin is going up faster than your dilution rate.<\/p>\n

The miners get an extra boost, because in up cycles,\u00a0they go up more than Bitcoin.<\/em><\/p>\n

As does MicroStrategy \u2013 and this is one of the main objections Kerrisdale Capital has to all this:<\/p>\n

They shouldn\u2019t.<\/em><\/p>\n

We\u2019ve been hearing a lot of this.<\/p>\n

Bitcoin\u00a0shouldn\u2019t\u00a0<\/em>be outperforming gold \u2014 Peter Schiff
\n\tMSTR and miners\u00a0shouldn\u2019t<\/em>\u00a0be acting as leveraged proxies for Bitcoin (Kerrisdale)<\/p>\n

Bitcoin ETFs\u00a0should\u00a0<\/em>be bad news for MSTR and even worse news for miners.<\/p>\n

Canada has had spot Bitcoin ETFs for years and it didn\u2019t stop Bitfarms (BITF.V) from being the number one performing stock on the TSX-V for 2023, it was number three on the Nasdaq (BITF).<\/p>\n

Up 618% on the year, it outpaced Bitcoin\u2019s 162% by\u00a0nearly 4X\u00a0<\/em>while the Canadian ETFs pretty much tracked the spot price (mildly\u00a0lagging<\/em>, actually).<\/p>\n

Why?<\/p>\n

When logic says they \u201cshouldn\u2019t\u201d but in reality they do, there has to be a reason.<\/p>\n

Few. pic.twitter.com\/5kO0Tyooh2<\/a><\/p>\n

\u2014 Mark Jeftovic, The \u20bfitcoin Capitalist (@StuntPope) June 7, 2024<\/a><\/p>\n

Make it make sense<\/h2>\n

My thesis has always been that the Bitcoin phenomenon isn\u2019t \u201ca trade\u201d \u2013 it\u2019s not like finding some hot penny stock that\u2019s going to rocket higher for longer \u2013 but at\u00a0some point\u00a0<\/em>it has to peak or at least level off.<\/p>\n

Bitcoin is a monetary regime change.<\/p>\n

If you\u2019re founding, operating, or investing in any of these monster data centers that mine Bitcoin, it isn\u2019t because you think \u201cnumber go up\u201d as much as you\u00a0 are\u00a0anticipating a world of hyper-bitcoinization.<\/strong><\/em><\/p>\n

Today we have the money center banks endlessly creating fiat backed by nothing out of thin air. The world looks like this:<\/p>\n

<\/a><\/p>\n

In the coming Post Fiat Era, it\u2019ll look more like this:<\/p>\n

<\/a><\/p>\n

It sounds crazy now \u2013 but so did Bitcoin, back in 2009. Look at the scoreboard.<\/strong><\/p>\n

Our thesis in\u00a0The Bitcoin Capitalist stock portfolio<\/a>\u00a0is that somewhere in there we have an Amazon of crypto, a Berkshire Hathaway of crypto, and a Microsoft of Bitcoin (among others). We don\u2019t second guess why they outperform Bitcoin or ETFs, we just look at where we think they\u2019ll be 10 or 20 years out from a \u201c1000-baggers\u201d framework.\u00a0Try it out here<\/a>\u00a0or sign up for\u00a0the free list here<\/a>\u00a0and get\u00a0The Crypto Capitalist Manifesto<\/a>.<\/em><\/p>\n

Follow me\u00a0on Twitter<\/a>, or\u00a0Nostr<\/a>\u00a0(npub: npub1elwpzsul8d9k4tgxqdjuzxp0wa94ysr4zu9xeudrcxe2h3sazqkq5mehan )<\/em><\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nSun, 06\/09\/2024 – 09:20<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/crypto\/betting-big-bitcoin-mining-wont-exist-five-years<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Betting Big That Bitcoin Mining Won’t Exist In Five Years…? Authored by Mark Jeftovic via BombThrower.com, Long Bitcoin \/ Short Miners Is The Mid-Curve Trade…<\/p>\n","protected":false},"author":0,"featured_media":1470282,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-1470281","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","wpcat-1-id"],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbimBl-6aud","jetpack_featured_media_url":"https:\/\/bugaluu.com\/news\/wp-content\/uploads\/sites\/3\/2024\/06\/bitcoin-mining_0-vR9Tit.jpeg","_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1470281","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1470281"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1470281\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media\/1470282"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1470281"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1470281"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1470281"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}