Founded in 2014 by Jihan Wu and Micree Zhan, Bitmain Technologies is a Beijing-based cryptocurrency company. No, not just the regular cryptocurrency company; it is the world’s biggest producer of cryptocurrency mining chips. Bitmain technologies control approximately 80% of the cryptocurrency mining chip market and have diversified its crypto mining operations through its mega-mining pools Antpool and BTC.com making them a power house in the industry.
Bitmain’s IPO and it’s advantages for the crypto-sphere
Earlier in August, Bitmain Technologies announced their plans to go public with an IPO (initial public offering). The company reportedly earned over $1.1 billion USD in quarter one of 2018, which is a massive figure considering that its entire profit in 2017 for the same period was about $1.2 billion. Not only that, the market fluctuations experienced in the first quarter of the year.
This proposed Bitmain IPO plans to raise about $3 billion and private reports have it that the Beijing-based company plans to file a listing with the Hong Kong stock exchange. This will enable early investors in Bitmain like Sequoia Capital and IDG Capital to cash out their investments.
If the listing is successful, it will be a milestone for the cryptocurrency industry as it has been struggling to get approval for a Bitcoin ETF. This would help push cryptocurrency to the mainstream of finance. Perhaps, an IPO is the first step the company is taking towards something outside of cryptocurrency. Recall that the co-founder, Jihan Wu, stated earlier in an interview that he wants to step into areas like artificial intelligence (AI). Listing could gain them more public attention as well as funding to pursue other projects.
Investor Fears about Bitmain IPO
It is worth noting that the market value of bitcoin and other altcoins have plummeted by more than 75% since January. The Bitmain IPO would seemingly test if investors still have the desire to invest in digital currency companies. However, more important is the fact that Bitmain has in its possession huge amounts of illiquid bitcoin cash (BCH) which could result in huge losses if Bitmain is unable to sell. This has elicited doubts and investors are concerned about the risks involved in participating in this initial public offering.
It appears that Bitmain gambled on bitcoin cash (BCH) by selling off a huge amount of bitcoin to purchase about 1 million BCH. Well, since then, the value of BCH has taken a nose-dive which cost Bitmain a lot of losses. In reality, they have lost about half a billion in investments.
Remember that bitcoin cash (BCH) currently has way few buyers than bitcoin (BTC) and not so many market opportunities for lack of utility. This makes it illiquid compared to BTC.
Since the major purchase, Bitmain has been able to sell off about 25% of the BCH they hold, although this means some losses due to the general market slump.
Bitmain isn’t apparently the only one filing for a listing on the stock exchange. They will be facing a lot of competition as they seek to attract investors to their IPO.
Ebang International holdings, another producer of crypto mining gear intends to list on the Hong Kong stock exchange. Canaan, a cryptocurrency mining gear company also working on artificial intelligence appilications, appears to have already filed for a Hong Kong IPO. Reports have it that they are looking to raise about $1 billion USD.
Among issues that hurt hamper the potential of a successful initial public offering for Bitmain is the denial of SoftBank as an investor in Bitmain as well as their failure so far to develop the Antminer 11.
You know how the fundamental analysis goes in cryptocurrency. SoftBank, one of the most successful companies in Japan and Tencent, the world’s largest investment corporation were rumoured to have participated in Bitmain’s pre-IPO round. However, it appears none of such happened as the communication office of SoftBank boldly stated that “neither the SoftBank Group Corp, nor the SoftBank Vision Fund was in anyway involved in the deal.”
On the other hand, Tencent has not in any way confirmed this news. Bitmain has since refused to comment on the matter which means they get to benefit from the profitable rumour. This really isn’t good considering the scepticism people already have towards the company regarding the BCH issue.
Even as the pioneers of the ASIC miners, Bitmain have had problems developing the next generation of Antminers. Reports have it that about $600 million has been spent trying to produce the Antminer. The disagreement between Jihan Wu, Bitmain co-founder and Yang Zuo Xing, former chip designer seems to have contributed to this struggle.
Bitmain IPO – Worth it or not?
Considering the rising interest rates and the recent weaknesses in the Hong Kong stock market, there are no guarantees Bitmain will hit their IPO target. If they remain stuck with their huge chunk of BCH holdings without a market to sell off to, coupled with current inability to develop superior mining chips, this will not go down well.
Nevertheless, Bitmain has a track record of success in such a short period alongside an astute businessman in Justin Wu. So, the IPO is one to watch out for and should not be taken lightly. As an investor, you might want to participate once the initial public offering (IPO) takes off.