Hedge funds are increasing their short positions in cryptocurrency miner stocks, betting that more financials will go after the collapse of the FTX exchange.
As the price of bitcoin has fallen by nearly two-thirds this year and the cost of energy miners require to fuel their power-hungry computers has skyrocketed, hedge funds are betting that some companies’ business models are still far from viable.
Bearish investors are betting that Sam Bankman-Fried’s FTX implosion will deepen the deterioration of a corner of the crypto market that expanded rapidly last year, often with borrowed money, hoping to cash in on high prices for tokens like bitcoin. .
Miners, which use a network of powerful computers to settle cryptographic calculations in exchange for new tokens, face a constant need to update their technology and are also highly dependent on the price of the cryptocurrencies they sell.
“Because crypto is trading way below where it used to be, and they [miners] have a lot of overhead, it’s not clear they’ll ever be able to make a consistent margin,” said Chris Crawford, chief investment officer at Crawford Fund Management in Boston, which runs hedge fund Eric Sturdza Investments and is short crypto. miners. Shorting means betting that prices will be lower in the future.
Short interest in US group Marathon Digital surged again last month to more than 36 percent of shares outstanding in the weeks since the FTX collapse, according to Nasdaq data.
Marathon paid its former CEO Merrick Okamoto just under $220 million last year. This was due to him awarding shares based on the company’s market capitalization, which greatly affects the price of bitcoin. And in October of this year, he was paid $24 million to settle a dispute over previous stock awards.
The company has been unprofitable many times. This year, it has fallen well short of its own production goals set last year of mining 55 to 60 bitcoins a day and forecasts of $86.5 million to $103.6 million in monthly profits.
Investors had already increased their bets on Marathon in the past year and were rewarded, as the company’s shares fell 86 percent.
Funds also more than doubled their bets against Stronghold Digital Mining, whose shares have already fallen 96 percent this year, to almost 10 percent of the stock since the start of the year.
Short interest in Greenridge Generation fell from less than 1 percent to 4.7 percent, while Hut 8 Mining and Riot Blockchain, the largest US-listed operator, have also attracted more attention from short sellers this year.
Already hit hard by a bear market in risky assets this year, crypto prices fell further last month after the dramatic collapse of FTX, once valued at $32 billion, and whose former CEO Sam Bankman-Fried was arrested in the Bahamas this week. after US government prosecutors filed criminal charges.
“Miner profitability is a discussion that comes up every time bitcoin goes down, and then it’s seen as a problem for all cryptos,” said Anders Kwame Jensen, co-funding manager at AKJ Digital Assets fund.
“Bitcoin mining misses the whole point of digital assets. the goal is ultimately to disconnect from the traditional world and all its players, not to step backwards by feeding into the grid,” he added.