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What’s shrinking much more quickly than bitcoin?

No less than one reply to that query is BIT Mining Ltd. (NYSE:BTCM), certainly one of many cryptocurrency firms minted in China during the last two years throughout higher instances when bitcoin was booming. After all, simply the alternative is true now, which has put many of those firms’ futures unsure. Inside that group, BIT Mining seems to be one of the endangered.

On Monday the corporate unveiled the most recent step in its struggle for survival, announcing a change in its American depositary share (ADS) ratio that equates to a 10-for-1 reverse share break up. The transfer is comparatively technical, designed to convey the inventory above the $1 stage to keep away from delisting primarily based on the New York Inventory Change’s requirement that every one shares commerce above $1.

Based mostly on its Monday closing worth, the reverse break up, which takes impact Dec. 23, would increase BIT Mining’s shares to $2.33, eradicating that delisting risk – at the least for now. The inventory fell 6% in after-hours buying and selling after the announcement, indicating traders weren’t notably impressed. At its present stage, the corporate is valued at just below $25 million, a fraction of the place it stood a yr in the past.

The larger backstory, in fact, is the massive crash of bitcoin and different cryptocurrencies this yr. Bitcoin is reflective of the bigger group, down about 64% this yr. The crash has dragged down a number of main firms thus far, together with the high-profile collapse of FTX (FTX-USD) final month.

The much-larger area of smaller firms like BIT Mining are all dealing with large difficulties as properly, since many have been miners that used enterprise fashions reliant on excessive cryptocurrency costs. At present costs, lots of these enterprise fashions now not work, with the consequence that almost all of those firms are dropping cash and have needed to halt a lot of their operations.

The most important downside proper now for BIT Mining, and plenty of of its friends, is straightforward survival, as most quickly burn via their dwindling money. BIT Mining has been working exhausting on that entrance, elevating a mixed $20 million in July and August via the sale of fifty.1% of its stake in its Loto Interactive unit for HK$78 million ($10 million), and one other $9.3 million via the sale of recent shares at a heavy low cost.

Frankly talking, we’re stunned the corporate may discover any patrons in any respect for its new share situation, since BIT Mining may fairly simply exit of enterprise, which might make these shares nugatory.

A take a look at the corporate’s money holdings exhibits how dire its scenario is. Its money and money equivalents stood at $12.5 million on the finish September, roughly half the $22.6 million it had three months earlier, in keeping with its third-quarter earnings report launched final month. But when we add within the $20 million it raised through the third quarter in July and August, it means the corporate burned via about $30 million in that three-month interval.

It doesn’t take a rocket scientist to understand that BIT Mining’s remaining money on the finish of September could be inadequate to cowl its prices via the top of the yr at its present burn fee.

Mining machine maker?

BIT Mining is sort of an older timer on China’s company enterprise scene, with greater than 20 years of historical past. It’s additionally a little bit of a chameleon, spending most of its early years within the playing enterprise as a third-party on-line vendor of tickets from China’s two state-operated lotteries. That enterprise mannequin went up in smoke round 2018 when China formally banned such third-party gross sales after a number of years of hinting at such a transfer.

After searching for a brand new enterprise mannequin for a number of years, the corporate thought it had lastly discovered a winner in late 2020 with the then-booming cryptocurrency market. It moved aggressively into the area as a cryptocurrency miner, and briefly noticed its fortunes – and inventory – soar. However all these features have been worn out within the present crash, with BIT Mining’s inventory down 96% thus far this yr, making it among the many worst performers within the group of associated Chinese language firms.

In its newest pivot to remain in enterprise, the corporate has introduced plans to make crypto mining machines. Such enterprise isn’t too a lot better than BIT Mining’s core enterprise of incomes cash via its personal crypto mining operations. However the economics nonetheless appear to work by way of having the ability to make earnings. A working example is Canaan Inc. (CAN), which managed to remain profitable within the third quarter regardless of falling income.

BIT Mining offered updates on a number of mining machines it’s creating in its third-quarter earnings report, most being developed by its Bee Computing unit. Essentially the most superior is a machine used to mine Doge (DOGE-USD) and Litecoin (LTC-USD) cryptocurrencies, with the corporate saying it anticipated to mass produce 3,300 of the machines in both December or January.

The mining machine initiative in all probability explains the current acceleration within the firm’s money burn fee, since new product growth at all times requires large R&D spending.

However the clock is clearly ticking down on BIT Mining to not solely construct the brand new machines, but in addition discover patrons within the present depressed market. The corporate’s income, principally derived from mining operations, plunged by about three-quarters to $97 million within the third quarter from $393 million a yr earlier. It managed to slash its working prices by an identical quantity, dropping the determine to $113.6 million from $414.2 million a yr earlier.

The underside line was that BIT Mining misplaced $22.2 million in its newest quarter, marking a slight enchancment from the $29.6 million loss a yr earlier. However an organization burning via money as quickly as BIT Mining can hardly afford such losses. Its precarious scenario is mirrored in its present miniscule price-to-sales (P/S) ratio of simply 0.01, which pales in comparison with Caanan’s 0.47 instances and a 0.62 ratio for rival Chinese language miner The9 (NCTY).

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Editor’s Observe: The abstract bullets for this text have been chosen by In search of Alpha editors.

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