Where did the mining machines go? Yuhong's listed company was shorted, its stock price was halved and triggered a class action lawsuit

Although Bitcoin has experienced a sharp correction in the past two days, if the timeline is extended to two or three months, Bitcoin has still skyrocketed.

Along with Bitcoin, the share prices of Bitcoin mining companies have also soared, such as Bit Digital, a US listed company currently controlled by Yuhong.

It has increased fivefold in two weeks, making it the undisputed No. 1 Bitcoin mining company on the Nasdaq.

But the good times did not last long. Bit Digital was soon targeted by the US short-selling agency J Capital Research, which released a short-selling report on January 11, accusing Bit Digital of not having as many mining machines as it claimed.

Then Bit Digital’s stock price fell sharply, from its highest point of $29.2 to $16.3.

And on January 20, a US law firm filed a class action lawsuit and is contacting investors who recently bought Bit Digital stock and suffered losses to claim compensation together.

All of this is asking a question:

Where have the mining machines gone?

Bit Digital - The unexpected rise of 2020

Bit Digital is the fourth Bitcoin mining company in North America with a market value of over $1 billion, but it only entered the Bitcoin mining industry in February 2020.

Prior to this, Bit Digital was called Dianniu Finance, a P2P company headquartered in Shanghai.

Later, P2P collapsed and was rectified. In July 2019, Dianniu Finance was taken criminal coercive measures by the police for suspected illegal absorption of public deposits.

Dianniu Finance became the first P2P platform listed on the U.S. stock market to be investigated, and its actual controller became a "red notice" person.

All in all, Dianniu Finance was once on the verge of delisting.

But in February 2020, Dianniu Finance began to turn around because of the emergence of key figure Yuhong.

Yuhong became the CSO (Chief Strategy Officer) of Dianniu Finance in February, and Dianniu Finance officially started its mining business.

6,004 Shemma M21S mining machines were launched in April, and another 16,865 mining machines were launched in July.

In May, it raised $2.6 million at a price of $0.4 per share, while the stock price in the secondary market was around $1.4.

In July, it raised $17.2 million at a price of $0.8 per share, while the stock price in the secondary market was around $2 at the time.

The investors in the above two rounds of financing were not disclosed, and the largest round of financing was in September.

In September, Dianniu Finance was sold for $10 (yes, you read that right, $10), changed its name to "Bit Digital," and officially divested its previous old business.

At this time, Dianniu Finance officially became the "world's leading Bitcoin custody partner" - Bit Digital.

In November, Bit Digital announced that it had purchased advanced Bitcoin mining machines from “certain non-U.S. investors” for $3.20 per share (worth a total of $13.9 million).

“These mining machines are located in Xinjiang, Sichuan and Inner Mongolia, and are expected to be fully installed by the end of December 2020.”

It’s worth noting that the stock price was $6.35 at the time.

The rest of the story is very simple. Bitcoin soared, and the stock price of Bit Digital, which owns a large number of mining machines, also soared.

Bit Digital’s unexpected rise in 2020 is inseparable from “certain non-US investors”——

They own a large number of mining machines across China, and Bit Digital uses shares to buy these mining machines, and the shares are discounted by 50% or more from the market price.

Therefore, the rise of Bit Digital is not so much about the continuous purchase of mining machines, but rather the continuous increase in Bit Digital shares by those who control the mining machines.

2021——Being Shorted and Being Sued

There are too many mysteries to be answered about Bit Digital’s rise in 2020, such as who exactly controls Bit Digital.

The short-selling report published by J Capital Research on January 11 accused Bit Digital of not having so many mining machines.

Bit Digital claims that the company has a total of 40,865 Bitcoin mining machines, of which 22,869 are operated in China.

But J Capital's short-selling report said it was "simply impossible."

Because they checked with the local government in China where Bit Digital claimed to host mining operations, and there were no Bitcoin miners there. And they checked with mining machine suppliers such as Bitmain, and there were no orders from Bit Digital.

Bit Digital’s stock price then dropped to $16, and there is currently no sign of an increase.

However, Bit Digital officials responded to the short-selling report.

As of January 15, 2021, Bit Digital has a total of 14,639 Bitcoin mining machines in Xinjiang, 17,926 mining machines in Inner Mongolia, 1,650 mining machines in Sichuan, 4,550 mining machines in Yunnan, 2,000 mining machines in Nebraska, and 100 mining machines in Texas.

The reason why J Capital verified with the local government and found that there were no mining machines was because "we will migrate the mining machines to the above-mentioned locations according to the season."

The reason why J Capital verified with the mining machine supplier and found that there was no order was because "the delivery time for buying new mining machines is long, so we chose to buy second-hand mining machines."

The strongest response was: “All our miners have a unique serial number that is different from any other miner for warranty purposes”.

It has to be said that Bit Digital’s official response makes sense, but the stock price did not recover.

Instead, on January 20, the US law firm Bragar Eagel & Squire, PC filed a class action lawsuit against Bit Digital and filed claims.

“Defendants made materially false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects.”

Specifically, it is believed that Bit Digital overestimated the scope of its Bitcoin mining business to investors, thereby materially misleading investors.

“We are focused on investor losses and whether Bit Digital may have falsified its business operations,” said Reed Kathrein, an attorney leading the investigation.

XMX emerges

As mentioned earlier, regarding the doubts about whether Bit Digital has so many mining machines, Bit Digital’s official response is also possible, that is, investors in the stock market have not been deceived.

However, Bit Digital’s official response brought XMX back to the surface.

“No former management and employees have been retained since October 2019, nor have they been involved in the company’s business operations or had any voice in management or on the board.”

In other words, the current Bit Digital is a brand new company that just borrowed the shell of Dianniu Finance.

“All Bitcoin mining operations in mainland China are conducted by XMAX Hong Kong.”

XMX, a computing power coin, officially announced on May 10, 2020 that it would suspend the operation of all mining machines and suspend the repurchase plan, that is, the dividends to investors.

Therefore, those who should file a lawsuit may not be the US stock investors who recently bought BTBT, but the Chinese cryptocurrency speculators who previously bought XMX.

However, Bit Digital stressed that “neither Chief Financial Officer Huang Erke nor Chief Strategy Officer Yu Hong has established any relationship with XMAX Hong Kong.”