The hottest "Ethereum treasury" faces short selling, business model targeted by Kerrisdale

BitMine Immersion Technologies, a company that has gained attention by transforming into the largest publicly traded Ethereum holder, is facing severe challenges from short-selling institutions.

The well-known short-selling firm Kerrisdale Capital released a report on Wednesday announcing that it has shorted BitMine's stock, stating that the company led by Tom Lee is "chasing an endangered model." The core argument of the report is that BitMine's strategy of acquiring Ethereum through premium stock sales to increase its per-share token holdings is no longer effective.

Kerrisdale believes that as BitMine's valuation premium relative to its crypto assets narrows, the attractiveness of its business model is diminishing. The firm also criticized BitMine's frequent stock issuances, arguing that this has led to "investor fatigue."

Following the report's release, BitMine's stock experienced significant volatility on Tuesday. The stock opened at over $60 but fell more than 5% during early trading, hitting an intraday low of $57.41. However, market sentiment later fluctuated, and the stock ultimately closed up 1.35% at $60.

In July of this year, the company's stock price peaked at $130 per share but has now nearly halved. Year-to-date, BitMine's stock price has surged 17,042%.

Narrowing Premium "Buy Coin" Model

Earlier this year, BitMine transformed from a Bitcoin mining company to a strategy of aggressively acquiring Ethereum, quickly becoming the largest public holder of the token. According to data from the Kerrisdale report, the company currently holds 283 million Ethereum, valued at over $12.5 billion, with approximately 9 Ethereum corresponding to every 1,000 shares of stock. BitMine is one of dozens of "crypto asset treasury companies" that attract investor attention by purchasing large amounts of cryptocurrency.

The core of Kerrisdale's attack lies in the sustainability of this model. The short-selling report argues that BitMine's strategy of buying Ethereum through premium stock sales is losing effectiveness as the premium of the company's stock price relative to its crypto asset net worth narrows. The report states that as its asset net worth multiple (mNAV) premium has dropped from over 2.0 times in August to 1.2 times in September, the foundation of this model is shaking.

Kerrisdale also emphasized the speed of BitMine's stock issuances in the report. It noted that the company has raised $10 billion primarily through market price issuances in the past three months. Kerrisdale stated:

"The absolute speed of BMNR stock issuances has turned early enthusiasm into fatigue, and investors habitually believe that every rebound will face more supply." The report also specifically mentioned BitMine's $365 million stock issuance in late September, calling it a "discount giveaway," and considered the transaction as "a cleverly packaged dilutive financing that sacrifices long-term credibility for short-term cash."

Leadership and Information Disclosure Under Scrutiny

Kerrisdale's report also pointed its finger at BitMine's executive chairman Tom Lee. The report claimed that while Tom Lee has "brought visibility" to the company, he "does not have the 'cult-like' following like (Strategy company chairman) Michael Saylor," who is able to issue billions of dollars in stock without losing investor enthusiasm.

Kerrisdale believes that BitMine's strategy requires "scarcity, charismatic leadership, and possibly something more innovative than issuing at market price," but the company "has failed to provide any of these." Additionally, the report criticized BitMine for becoming opaque in its business disclosures, claiming that as growth slowed, the company had stopped reporting the key metric of net asset value (NAV) per share.

Kerrisdale stated that its short position on BitMine "is not a bet against Ethereum itself, but a bet against the notion that investors should still pay a market premium for it." The report argued that BitMine's selling point is its promise to provide more value than directly holding tokens, but the reality is that its strategy is not unique, competition is surging, and information disclosure is becoming increasingly vague:

"If you want Ethereum, just buy it directly, stake it with minimal friction, or hold it in the rapidly increasing ETFs."

Previously, Kerrisdale had also targeted other crypto companies, including the Bitcoin mining company Riot Platforms and the Bitcoin purchasing company Strategy. At that time, Riot rebutted Kerrisdale's report to Cointelegraph, stating that it reached "unreasonable conclusions."