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Tom Lee's BitMine Is About to Own 5% of Ethereum. Then What? BMNR Deep Dive. — Transcript

by Dana Love, PhD · 3,163 words · 504 segments · language en · Watch on YouTube

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0:00Tom Lee is the chairman of Bitmine
0:02Immersion Technologies and the
0:03co-founder of Fundstrat. His company
0:05owns 6,1,32
0:08ETH. That's 4.9% of all the Ethereum in
0:11existence as of September 27th. And on
0:15its last quarterly filing, the quarter
0:16that ended May 31st, Bitmine reported
0:1930.1 million in total liabilities.
0:22But the cover page of that same filing
0:24carries a second ticker symbol. It sits
0:27one line under BMNR and it's the reason
0:30this video exists. Hold on to it. We'll
0:32get there. This week, Lee said Bitine is
0:35about 100,000 ETH from its target and
0:38then it's done stacking. The market
0:40heard that. Bit mine was at $26.31
0:44before the news. Yesterday, it traded at
0:46$23.92,
0:49down 9%. Aurium is down about 2% in the
0:52last 24 hours. That gap matters because
0:56at this morning's price, Bitmine is
0:58worth less than the ETH and cash it
1:00holds, about 92 cents on the dollar.
1:03Think about how it got here. In 9
1:06months, Bitmine raised 11.87
1:09billion by selling its own stock and the
1:12share count went from 232 million to 580
1:16million. That's how you buy almost 5% of
1:19Ethereum without a loan. You print
1:21shares and you sell them to people who
1:22want Tom Lee's Ethereum bet in a
1:24brokerage account. And Bitcoin Bit has
1:28bought ETH every single week since it
1:30started this strategy on June 30th,
1:342025,
1:35more than 60 weeks in a row. But Lee
1:38told Bankless in August that he'd
1:40throttled it down and the buys got
1:42small.
1:447391 ETH in the week before August 10th,
1:4717,362
1:49in the week of September. Sorry, the
1:50last week of September on a $6 million
1:53ETH stack. That's rounding,
1:56which raises the question nobody on the
1:58bull side is asking. When the buying
2:01stops, what is the stock for?
2:05Before we get to Bitmine, a disclosure.
2:07The next 90 seconds were paid
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3:31find the link in the description below.
3:35Lee has an answer about who his stock is
3:38for after the buying stops. And he's
3:40been consistent about the first half of
3:42it. We kept it very simple because we
3:46said we wanted to keep uh the capital
3:49structure clean and the whole endeavor
3:51was funded with equity. No debt, uh no
3:56convertible instruments.
3:58>> He's telling the truth. I checked the
4:00balance sheet line by line, but a
4:02balance sheet doesn't show you
4:03everything a company has promised to
4:05pay. I'm Dana Love. Three things that
4:08I'll prove today. One, Bitmine has no
4:11debt at all. And that claim survives
4:13every filing I read. I'm not here to
4:16tell you otherwise. Two, Bitmine has an
4:19instrument that behaves like debt, pays
4:21like debt, and punishes a missed payment
4:23like debt. And the man who chose that
4:25word for it is Tom Lee. Three. At 5%,
4:30Bitmine stops being an Ethereum buyer
4:32and turns into a different business. Its
4:34own staking yield pushes it past the
4:36line it drew. I'll give you my odds on
4:38what that business does next and what
4:40would prove me wrong.
4:42Let's get forensic.
4:47Let's start with the price tag. As of
4:48May 31st, Bitmine had paid 19.05 billion
4:52for its ETH. On that same day, the
4:54filing put the fair value at $10.86
4:56billion.
4:58That's an $8 billion hole on paper, and
5:01it's why Bitmine reported a net loss of
5:03$9.1 billion for 9 months.
5:07Now, almost all of that loss is
5:09unrealized. In plain terms, it's the
5:12price of ETH moving, not cash leaving
5:14the building. Bitmine marks its ETH to
5:17market every quarter. So, when ETH
5:19falls, the income statement takes the
5:21hit even though no coin was sold.
5:24Well, okay then. I mean, that's the
5:26accounting and it cuts both ways. When
5:28ETH rallies, the same rule prints a big
5:31gain.
5:32The real income is staking. Bitmine is
5:35an active treasury company rather like
5:37the XRP treasury company Evernorth.
5:40Bitmine stakes 5,67,39
5:43of its ETH through its own platform,
5:46Maven, the Made in America validator
5:49network, and earns rewards for helping
5:50run Ethereum. Lee likes to say that's
5:53about a million dollars a day. That's
5:55the projection. The 10 Q shows what
5:57actually got booked. 45.7 million in the
6:01March to May quarter. That's about
6:03$53,000 a day. Still real money. Half
6:07the headline.
6:09Maven itself was bought, not built. In
6:12March, Bitmine acquired Pier 2, an
6:14Australian staking company for about
6:1627.8 million in cash, stock, and
6:19earnouts and rebranded it. Lee says
6:22Maven now stakes about $2 billion of
6:23other people's crypto, too. That's a
6:26business with customers, which is more
6:28than most Treasury companies can say.
6:32and somebody takes a cut. Until
6:34September, the a company called Ethereum
6:36Tower ran Bitmine staking strategy under
6:38a 10-year agreement that paid it a share
6:41of net staking revenue. On September
6:434th, Bitmine ended that agreement and
6:45signed a new one with an affiliate,
6:47American validator, for 1.5% of staking
6:50rewards. Simpler, cheaper, probably. The
6:54filing says Bitmine paid no material
6:56penalty to get out. Two more things from
6:59the fine print. The prospectus says
7:01Bitmine's disclosure controls were not
7:03effective as of February 28th because
7:06the material weaknesses in its internal
7:07controls over financial reporting. And
7:11in April, Bitmine dismissed its auditor
7:13and hired KPMG. There's nothing wrong
7:16with that. It's what a company this size
7:18should do. It also means that the next
7:20annual report is the first one a big
7:22four firm signs.
7:27That didn't help Enron. I'm not saying
7:29Bitmines and Enron. More of a dig about
7:32the big four firms.
7:35Was entirely a dig about the big four
7:37firms, but they're very reputable. I
7:39have friends who work there. Please
7:40don't yell at me that I just said
7:41something bad about your company.
7:45Now, the detail [laughter] the detail
7:47most coverage will skip. Every Bit Mine
7:50press release tells you what percent of
7:52of Ethereum it owns. through August
7:5510th, the denominator was 120.7 million
7:58ETH. On September 28th, it was 122.1
8:02million. Same company, same goal,
8:05different finish line. I mean, Ethereum
8:08does increase in value. It has no hard
8:10cap.
8:13Hold on to that one, too. It changes the
8:15math on the 5% target, and I will show
8:18you exactly how in a few minutes.
8:23Back to the SEC filing cover page. The
8:26second ticker is BMNP.
8:28In June, Bitmine sold 3.5 million shares
8:31of something called BMNP. That's a 9.5%
8:35series A perpetual preferred. In plain
8:38terms, think of it as a bond that never
8:39matures and never has to be paid back.
8:43At launch, you paid $80. You got credit
8:46for 100. And Bitmine owes you $9.50 a
8:49year on every share paid weekly. Lee
8:52says it's the only one of the 175
8:55largest preferreds that pays every week.
8:59Everybody's trying to split that
9:00marketing hair.
9:03Here's something that isn't marketing,
9:05though. The deal was supposed to be 3
9:06million shares. Demand pushed it to 3.5
9:09million. That's $280 million raised. Lee
9:13says it was more than five times overs
9:15subscribed. And in his October message,
9:17he put it at $99,
9:19up from $80 in a bond market where
9:21treasuries fell. Those preferred buyers
9:24did very well.
9:27Now, the detail most YouTube coverage
9:29skips. The dividend is cumulative. If
9:32BitMine misses a payment, it doesn't
9:34disappear. It compounds up to 15%.
9:38Miss it for 12 months and preferred
9:40holders get to put a director on the
9:42board. Bit mine can call the whole thing
9:44back, but until December 2027, that
9:47costs 110 cents on the dollar. And if
9:51Bitmine has ever sold or taken over,
9:52every preferred holder can demand $100 a
9:55share in cash plus anything unpaid.
9:59Is that debt? The filing says no. It
10:02ranks junior to any debt, and Lee is
10:04right about that. Then in his October
10:07message, he called it his cost of debt,
10:109.56%.
10:12his words.
10:14That 9.56% is roughly what a buyer earns
10:17at today's prices. The weekly bill is
10:20about $640,000
10:22every week forever. Unless Bitmine buys
10:26it back.
10:28When we built Interbank Settlement at
10:29Rad Pay, nobody on my team cared what
10:31the accountants called a fixed payment
10:33on a fixed schedule. It was due every
10:35week. It was a liability on our
10:37whiteboard. Maybe not on the on our
10:39specific accounting lines, but on the
10:41whiteboard, we had to pay it. That's how
10:44operators think about it, and it's how
10:46you should, too.
10:49The $80 price tells you the real cost.
10:52Bit mine paid $9.50 a year to raise $80.
10:56That's almost 12% money. Lee's argument
10:59that it is cheap because it's like
11:01buying a three-year call option on ETH,
11:03and a real three-year call would cost
11:05far more.
11:07He's a smart guy. That's a smart
11:09argument.
11:10It's also the argument every preferred
11:12issuer makes on the way in. If forensic
11:15reads like this help you, now is a great
11:17time to subscribe. If you're already
11:19subscribed, I'm glad you're back. And
11:22hey, did you know I have a book?
11:27Now, Lee's self-imposed finish line. 5%
11:31of 120.7 million ETH is 6,35,000.
11:375% of 122.1 million is about 6,15,000.
11:43Moving the denominator added 70,428
11:46ETH to the target. Ether Scan puts total
11:49supply at 122,18,563
11:54this morning. So the new number is the
11:56honest one. The old number was just
11:58stale. Bitmine just fixed it and they
12:01fixed it right as it got close. So what
12:04happens when Bitmine gets there? We
12:07answered that on Bankless in August
12:09>> at 5% if we're at 5% and then we're
12:13still stacking ETH through yield. There
12:16is maybe a scenario where we're just
12:17going to not not want to go over 5%. So
12:21we would sell the rewards that we're
12:23receiving. You know, that's possibility.
12:26>> Now look at what that means. Bitmine is
12:29staking 5,67,3009
12:32ETH at a 2.62% yield. That's about
12:35132,000 new ETH a year. The gap to 5% is
12:40about 104,000.
12:42So, Bitmine doesn't need to buy another
12:44coin. Staking alone gets it to 5% in
12:47about 9 months a year.
12:50And then every month after that, roughly
12:5211,000 ETH shows up that pushes it past
12:55its own cap. Either the cap breaks or
12:58Bitmine starts selling ETH. The company
13:02has said that it will never have to
13:03sell. It will never sell.
13:07Heard that before.
13:10Meanwhile, the capital machine changed.
13:14Lee told Banklist that Bitmine's main
13:16source of cash is selling common stock
13:17when it trades above net asset value.
13:20Analysts call that ratio MNAV, which I'm
13:24pretty sure came from like a grassroots
13:27movement inside the strategy
13:29shareholders.
13:30It's just my memory, though. I don't
13:32know. This is why I shouldn't This is
13:35why I improv too much when I'm on
13:37camera. Anyway, MNAV, the share price
13:40divided by the net assets behind each
13:42share. Above one, selling stock buys
13:45more ETH per share. Below one, it gives
13:48ETH away. This morning, Bit Mine is
13:50around 0.92.
13:52The math is simple. 6,132
13:56E252,523
13:59plus cash and stakes minus the preferred
14:01in the bills
14:03comes to about 15.75 billion.
14:07Spread that over 63 million shares in
14:09the last 10 Q cover and it's about 2611
14:12a share. The stock isn't there. So, the
14:17common ta stock tap is shut. Bit mine
14:21already spent $350 million buying back
14:2321 million shares this summer, which is
14:26exactly what you do below NAV. And it
14:29has it still has room under a $4 billion
14:31buyback authorization.
14:33But a buyback spends cash. It doesn't
14:36raise any.
14:38Lee did the math on that out loud. on
14:41bank list. He said that to finish the
14:42job, Bitmine might only need to issue
14:45another $150 million of preferred, not
14:48billions,
14:50150 million. He floated it himself. He
14:54also said that if the Clarity Act had
14:56passed, Bit Bitmine probably would have
14:58sped up.
15:01Which leaves one question. If you can't
15:03sell common, how do you keep paying 9.5%
15:06a year due every single week?
15:11The prospectus answers it. Bitmine
15:14expects to fund the BMNP dividend
15:16through staking, through option
15:18strategies on its ETH, and through at
15:20the market offerings of our preferred or
15:22other equity securities.
15:24Selling more preferred to pay the
15:26preferred. That's in the document in
15:28Bitmine's own words.
15:30And the option strategies are real. The
15:3310Q says Bitmine sells put options on
15:35ETH. In the March to May quarter, that
15:38line lost $92.1 million,
15:42twice what staking earned in the same
15:44quarter.
15:45Michael Sailor runs Strategy, the
15:47largest Bitcoin treasury company in the
15:49world with $848,000
15:51Bitcoin. If you've watched this channel,
15:54you know I've been through Strategy's
15:55filings more than once. Strategy built a
15:58whole shelf of preferreds. Strike, the
16:01ill- named Strife, Stride, Stretch, one
16:05at a time, each with its own dividend.
16:08And between June 30th and August 10th,
16:10Strategy sold 6,916 Bitcoin. Its own 8K
16:15says the proceeds were used to fund
16:16payment of distributions on preferred
16:18stock.
16:20That's with a $2.55 billion cash reserve
16:23at the time sitting right there and a
16:26program to sell up to $1.25 $25 billion
16:29worth of more Bitcoin to refill it.
16:33I believe I'm always fair to Sailor.
16:356916
16:37and Fong the president and CEO who
16:40actually makes this point much more
16:41vigorously than than Sailor does. 6916
16:45out of 848,000 is less than 1%. That's
16:48not a fire sale. That's a habit forming.
16:52They don't say that last sentence.
16:55I'm not telling you Bit Mine is
16:57strategy. I'm telling you Bitmine just
16:58built the first floor of the same
17:00building,
17:04which I think is cool.
17:06Now, the strongest case against me, I'll
17:09give it to you best I know how. BMNP
17:12costs Bitmine $33.25 million a year.
17:16Projected staking is $358 million a
17:20year. That's 10.8 8 times coverage. Even
17:24on what Bitmine actually booked last
17:26quarter, it's about 5.5 times. And
17:29Bitmine has $672 million in cash and
17:32securities, which is 20 years of
17:35dividends sitting in the bank. Lee also
17:38told Bankless he doesn't expect billions
17:40of BMNP unless Bitine goes well beyond
17:445% of ETH.
17:46All true. There is nothing wrong with
17:48this preferred today. The risk isn't
17:51this issue. It's the next one. Issued by
17:54a company that can't sell common below
17:56NAV and has a cap, its own yield won't
17:59let it hold.
18:02And I I I like saying now's the now the
18:05number inside the number because I
18:06really like digging through this stuff.
18:07So now the number inside the number. Lee
18:11says the dividend is easily covered by
18:12staking rewards. In the same interview,
18:15he says Bitmine isn't converting those
18:17rewards into dollars at all.
18:20Both can't fund the dividend at once.
18:22Rewards that stay in ETH don't pay a
18:24cash dividend. If both are true, the
18:27weekly check comes out of cash, not
18:29rewards.
18:31I mean, that's fine with $672 million in
18:33it. It's the habit that matters.
18:38So, what is BMR versus Ethereum? I mean,
18:42Ethereum is the asset. BMNR is now a
18:45spread. It earns a floating 2.62% 62% on
18:48ETH and pays a fixed 9.5% to raise
18:51money. And the gap gets filled by ETH
18:54going up. If ETH goes up, BMR should
18:57beat it. And Lee has the chart to prove
18:59it did. He claims 53,500
19:03basis points of outperformance since
19:05Bitine started. And this year, Bitine is
19:08up 3% while ETH is down 9%. Those are
19:11his own numbers and they're from his own
19:13deck. If ETH goes sideways, you're
19:16paying a management team to run a spread
19:17you could skip by owning ETH.
19:22My take is always my opinion. I look at
19:25possible future cases and give them some
19:26odds. They are projections. Please treat
19:29them as such.
19:3170% that by the end of 2027, Bitmine
19:34either owns more than 5% of Ethereum or
19:36has sold more preferred stock than the
19:383.5 million shares it sold in June.
19:4220% that this happens before the end of
19:432026.
19:46Here's what proves me wrong. First one,
19:49the fiscal 2027 annual report shows 3.5
19:52million preferred shares and holdings at
19:54or under 5%. Obviously, their SEC filing
19:57will be vetted and true. So, that would
20:00I I'd come on and say, "Hey, I got it
20:02wrong." Two, BitMine redeems BMNP early
20:06at 110 cents.
20:08That would be unexpected.
20:11Three, Bitmine sells its staking rewards
20:14every month for a year to hold exactly
20:165% and says so in a filing.
20:20One thing that doesn't move me, an ETH
20:22rally. A rally doesn't fix the cap. It
20:24makes issuing more paper easier.
20:28I mean, no [clears throat] CEO announces
20:30he's going to stagnate. Lee drew the
20:32line at 5%.
20:34I think he said that he planned on it
20:36taking five years. So, they're probably
20:39scrambling to figure out a strategy that
20:40they got to five times faster than they
20:43thought
20:45because right now Lee's own yield is
20:47already walking him past it.
20:50The next filing is Bitmine's annual
20:52report due in late November, the first
20:54one KPMG signs. If I'm wrong, I'm I'll
20:57say so right here. I'll probably give
21:00you a full readout of it right here.
21:01Anyway, I'm Dana Love. I appreciate you
21:04watching. Thanks for inviting me onto
21:06your screen.
21:10I will probably clip on a terrible
21:13singing thing I did as I was warming up
21:15my voice.
21:17You will likely say, "Danny, you
21:19shouldn't warm up your voice." Anyway,
21:21I'll see you in the next one.
21:24But for 24 years, I've been living next
21:27door to Alice.
21:3224 years just waiting for a chance to
21:35tell her how I feel and maybe get a
21:37second glance. But for 24 years, I've
21:40been living next door
21:43to Alice.
21:47Happy October Fest.

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