Over the last couple of days, a small Chinese bitcoin mining company called Bit Digital has exploded in value as the market has begun to realize the potential of the company's bitcoin mining operations. In the last few hours, however, J Capital, a short seller, published a report alleging that the company is basically a total scam, has no meaningful operations, and is worth nothing. In addition, they claim that the company's board cannot reach it's ceo for comment, because his whereabouts are not currently known. Publicly wanted for questioning, some have speculated that the Chinese authorities have detained him. This short report, combined with the fall in price of bitcoin over the weekend, sent the stock tumbling down -25% today. Now, while the stock is down a ton, it might be the exact opportunity we need to create a beautiful trade.
Ok, so here's the plan: Long Riot, and Short BTBT . Theoretically, BTBT is worth nothing, but the company will still likely retain some of its trading correlation with BTCUSD . Hence, you can't really just short it outright without controlling your risk. At the same time, you might want to be a dip buyer in BTC , but it's tough to know exactly when the bottom will be and you, like me, likely don't want to risk an investment going to zero.
Hence, our trade. When BTC goes up, RIOT should go up more than BTBT , because BTBT has the fraud and short seller claims as a massive headwind / overhang, though some will still use it as a BTC proxy. When BTC goes down, BTBT should lose more value than RIOT, because the company is alleged to have no meaningful operations, and the only thing holding the stock price up is the hope for higher BTC prices, again, in its use as a BTC proxy. This spread should essentially create a synthetic long bet on BTCUSD , while removing a ton of the risk involved in buying it at these prices.
LMK if you decide to try the trade, and feel free to ask questions in the comments below if you don't understand the idea.