The shorting fund of MicroStrategy has its sights set on the Ethereum treasury company.

From a premium of 14% to a discount of 31%, see how Kerrisdale exposes the "lie" of premium capital increases, analyzing the logic behind its shorting of Ethereum treasury company BitMine. (Background: MicroStrategy's Bitcoin scale is "close to Amazon's cash" level, and the mindset of dollar depreciation enters corporate operations) (Supplementary background: BitMine bought the dip of 128,000 ETH! Tom Lee insists on going long: the pullback is a healthy whipsaw, and the market has not undergone structural changes) At 21:47 Taiwan time on October 8, and 8:47 am local time in New York on the 8th, shorting institution Kerrisdale Capital publicly announced on X that it has shorted the stock BMNR of Ethereum treasury company BitMine. Kerrisdale stated in its tweet that it does not have a bearish view on Ethereum but believes that the premium of the treasury company model that BitMine provides to its stock price relative to net asset value is about to disappear, and Kerrisdale is betting on a decline back to parity or even a discount. This shorting of BMNR is not the first time Kerrisdale Capital has targeted cryptocurrency concept stocks; it had shorted Bitcoin mining company Riot and the ancestor of DAT, Strategy (formerly known as MicroStrategy) in mid-2024, and the stock prices of the companies being shorted experienced significant declines after Kerrisdale's shorting news broke. This time, after Kerrisdale announced the shorting of BMNR, the stock price did not immediately show significant declines; last night's sharp drop was more in line with the broader market. However, from a price perspective, on October 10, local time in the U.S., BMNR's closing price ($52.47) fell more than 10% from its closing price on the 8th ($60). A close reading of the shorting report reveals that Kerrisdale's six reasons for choosing to short BitMine's stock hit the nail on the head, and unlike the hedging operation of going long Bitcoin while shorting Riot and Strategy, this naked shorting of BMNR also reflects Kerrisdale's extreme pessimism toward BitMine. The "flywheel" has become a "death spiral". Kerrisdale's reasons for being bearish on BitMine mainly include six aspects: 1. The Ethereum content per share is severely diluted: BMNR issued over 240 million shares through ATM in just three months, raising over $10 billion, with an average daily financing of about $170 million, severely diluting the Ethereum content per share; 2. mNAV continues to decline: The premium of BMNR's market capitalization to its net crypto asset value (mNAV) has decreased from 2.0 times in August to 1.4 times, with the trend continuing to worsen; 3. Financial means to cover up the cash-out facts: The recent $365 million "premium" financing is actually a deep discount, and the attached warrants significantly dilute the value of common stock; 4. Lack of transparency: The company stopped disclosing NAV per share and total share capital since August 25, making it impossible for investors to judge whether the Ethereum "content" per share has increased; 5. Intensified competition: 154 companies in the U.S. are planning to raise nearly $100 billion for crypto financial strategies, and the launch of ETFs will further weaken DAT's scarcity; 6. Strategy model failure: As the ancestor of DAT, Strategy's mNAV premium has dropped from 2.5 times to 1.4 times, shaking market confidence in this model. To understand the logic of shorting, we first need to explain the core logic of DAT company operations. As Kerrisdale mentioned in the report, the core logic is: issue shares at a price higher than the book token value → fundraising → buy more coins → increase the per-share coin amount → maintain premium → issue more shares, forming a self-reinforcing cycle. For example, if company A has Bitcoin worth $1 billion on its books and a total share capital of 100 million shares, A Company issues new shares to raise funds at a price higher than $10 per share, because investors expect that after the fundraising, the company's continued purchase of Bitcoin will increase the per-share Bitcoin "content", thereby raising the stock price, and they will be willing to buy the new shares at a premium. Thus, after completing the fundraising, Company A continues to buy Bitcoin, increasing the per-share Bitcoin content and also raising the share price. A Company can continue this type of operation to continuously drive up the stock price. However, maintaining this cycle requires two necessary conditions: first, the initial phase mNAV needs to have a premium or at least an expectation of future premiums; second, the premium and premium rates must be maintained. If the premium rate is 0 or even negative, investors might as well buy the corresponding crypto assets directly. Therefore, we can combine points 1, 2, and 4 to explain the bearish reasons. According to the report, Kerrisdale estimates that as of October 6, BitMine has issued over 240 million shares, raising the total share capital to 311.7 million shares. Although from July to August, BitMine increased its content from 2.7 ETH/k share to 7 ETH/k share through the flywheel, Kerrisdale estimates that from August 25 to October 6, the company's Ethereum holdings increased by 65%, but the Ethereum content per share only increased by 17%. In other words, Kerrisdale believes that the dilution means that the growth rate of content will continue to lag behind the growth rate of Ethereum holdings, and combined with the mNAV has fallen from 2 times in August to 1.4 times, the declining growth of content and declining premium may lead to a vicious cycle, causing both numbers to continuously decline under mutual influence, ultimately leading to parity or even discount. If the data contains elements of speculation, then BitMine's decision to stop disclosing NAV per share and total share capital since August 25 has solidified Kerrisdale's judgment, just as it mentioned on X: "If the earnings per share improve, they should promote it vigorously." The "premium capital increase" is actually "discount cash-out". On September 22, BitMine announced that it had signed a securities purchase agreement with an institutional investor to issue 5,217,715 shares of common stock at a price of $70 per share through a registration direct offering and granted warrants to purchase up to 10,435,430 shares of common stock (exercise price of $87.50 per share). After deducting placement agent fees and other estimated issuance costs, the company expects total proceeds from this issuance to be approximately $365.24 million. This news, which usually drives up stock prices, is seen by Kerrisdale as BitMine's financial means of discount cash-out. The report states that the issuance price of $70 has a premium of about 14% compared to the closing price of $61.29 on that day, but each share comes with two warrants (exercise price of $87.5, term of 1.5 years). According to Black-Scholes (vol 100%, rate 4%) and accounting for a 40% liquidity discount, each warrant is worth...