What happened

Shares of cryptocurrency stock BIT Mining Limited (BTCM -2.49%) skyrocketed on Thursday. As of 3:30 p.m. EDT, the stock was up 31%, but it had been up over 50% earlier in the session. Many traders believed this stock was ripe for a short squeeze, and perhaps the surging prices of Bitcoin and Ethereum provided the necessary catalyst.

So what

For context, Bit Mining stock was previously down for two reasons. First, cryptocurrency mining companies in China have been struggling because the government banned mining operations there. This forced companies like Bit Mining to shut down, at least temporarily. Second, the market has soured on Chinese stocks in general. For example, the iShares MSCI China ETF (a fund that holds a variety of Chinese companies) is down roughly 26% from its high earlier this year.

A person points to a chart on a computer while talking on the phone.

Image source: Getty Images.

Investors were staying clear of Bit Mining stock for both reasons. However, traders do like finding unloved stocks for short squeezes these days. According to Yahoo Finance, short interest on this stock is only 6%, which isn't very high. However, the float (shares available on the market) on this small-cap stock is quite low, making it a little easier to potentially squeeze it.

All Bit Mining needed was a surge of trading volume to send it higher. Today, it got it. As of this writing, over 23.5 million shares traded hands compared to a three-month daily average of under 1.9 million. Bit Mining mines and holds Bitcoins and Ether tokens. The recent gain of these two cryptocurrencies was perhaps enough of a catalyst to bring in the trading volume.

Now what

Trading volume and short interest won't move a stock long term -- these are temporary factors. If Bit Mining stock goes up long term, it will be because of success with its business.

According to its latest update on Aug. 17, Bit Mining has successfully relocated its mining operations to Kazakhstan. In the second quarter, it was able to generate $445 million in revenue, which is substantial considering its market capitalization is only $868 million. However, it generates most of its revenue from its mining-pool business -- not from directly mining cryptocurrencies. And the profit potential on the mining-pool business isn't good at all; its overall gross margin was a mere 2.2% in Q2. 

This means that it's hard to imagine Bit Mining being a winning investment unless it can run its mining-pool business at a better profit margin or unless it diversifies into something more lucrative. Until Bit Mining can make progress here, there are probably better stocks for long-term investors' radars.