Ethereum Miner Dumped ETH After Merge in Favor of Dogecoin

Crypto miner BIT Mining (BTCM) once made most of its self-mining revenue from Ethereum. After the Merge, it’s increasingly relying on Dogecoin and Litecoin for fresh cash.

The miner, based in Ohio and listed on the New York Stock Exchange, reported revenue of $72.9 million for last quarter — a near-20% jump from the previous period but down 75% year on year.

BIT Mining’s revenue comes from three primary business areas: mining crypto itself, mining as part of a pool and hosting services in its datacenters. 

The firm’s mining pool revenue came in at $60 million last quarter, making up 82% of its total inflows, while self-mining and datacenters each brought in about $6 million.

As noted by analyst Mike Fay (via Seeking Alpha), Ethereum mining contributed more than three-quarters of BIT’s self-mining revenue leading up to the Merge last September. 

The event transitioned Ethereum away from energy-intensive proof of work to proof of stake, eliminating the need for crypto miners as part of consensus. 

BIT Mining’s self-mining revenue predictably nosedived after the switch, dropping from $7.1 million in Q3 2022 to $1.9 million in the following period. 

The firm mined $6.2 million crypto in the first quarter of 2023 — most of it litecoin (LTC) and dogecoin (DOGE) after shutting down certain bitcoin mining rigs.

Dogecoin and Litecoin hashrates skyrocketed to all-time highs directly around the Merge, although their hashing algorithms differ from Ethereum’s. Crypto miners are able to direct their rigs at Dogecoin and Litecoin simultaneously through what’s known as “merge-mining.”

BIT Mining sold ETH over staking it

Fay found one move particularly confounding: BIT Mining sold one-third of its ETH holdings between quarters, amounting to 1,602 ETH ($3 million at current prices). 

On the other hand, the firm held 62% more dogecoin quarter on quarter, going from 42.8 million DOGE ($3.1 million) to 69.5 million DOGE ($5 million). Its bitcoin holdings (289 BTC worth $7.8 million) remained unchanged.

That means BIT Mining’s crypto balance sheet was almost 28% DOGE at the end of Q1 2023. Its total assets were $40.2 million with $39 million liabilities, including lease obligations.

“The company’s crypto treasury management decisions are odd from where I sit,” Fay wrote in his report. “While I’ve made it no secret that I think assets like Dogecoin don’t have much of a future, in my view the more egregious decision is selling the ETH on the balance sheet when the company could be generating rewards by staking it natively on-chain.”

Fay continued: “It’s difficult to understand why management would opt instead for holding meme coins rather than selling all DOGE production and staking Ethereum at virtually no cost. BTCM is still an avoid for me.” Blockworks has reached out to BIT Mining for comment.

In any case, BIT Mining has reportedly only managed to generate a positive net income for one quarter between 2016 and 2022 while increasingly diluting its shares as of 2021.

BIT Mining, which commands a $31 million market cap, is up 85% across 2023 so far but down the same amount over the past year.

David Canellis contributed reporting.

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