Miners are a cost curve, and the cost curve keeps moving

It traded at 12.56 this morning, -2.75% on the session. I want to make a structural argument rather than a directional one, because the structure is the part people skip.

The treadmill, in one paragraph

A miner's revenue is its share of network output. Improve efficiency and share rises, briefly. But every other miner is doing the same, and the protocol adjusts difficulty upward to absorb the added capacity. The improvement is competed away by design, not by rivalry.

So capital spending here is not growth spending. Much of it is the cost of holding position. That is a materially worse business than the equipment purchases make it look.

What I watch

• Network difficulty against the company's own capacity growth, which is the only comparison that matters
• Cost per unit of output, all in, including the depreciation on machines with short useful lives
• The power contract, which is the actual competitive advantage if there is one
• Share issuance, because that is usually how the treadmill is funded

The last one is where the shareholder actually experiences the problem. The operation can be growing while the per-share claim on it shrinks.

Where I stand

Short, structurally rather than tactically. The argument is not that the asset falls. It is that even in a rising market, the operator must keep spending to stand still, and the spending is funded in ways that dilute.

The protocol is indifferent to your capital expenditure. That is the entire point of it.

Where I am wrong

If the asset price rises faster than difficulty, revenue outruns the treadmill and the equity moves violently against the view. This is a high beta short, and it can be badly wrong for a long time before it is right.

I would also drop the short view on a genuinely differentiated power position, since cheap and contracted electricity is the one advantage that difficulty adjustment cannot erode.