The Rocky Road to the World’s Largest IPO — 5 Things You Need to Know
By: Yohann A
Tags: Blockchain, Bitcoin, Bitcoin Mining, ICO

One of the most contentious and talked about news within the cryptosphere is Bitmain’s gigantic Initial Public Offering (IPO) which it intends to complete later this year. (Not to be mistaken for an Initial Coin Offering (ICO)…Yes, Bitmain are really trying to go mainstream legit; so it seems)

What’s all the fuss about?

Bitmain operates the largest cryptocurrency mining pools worldwide; namely Antpool.com, BTC.com and connectBTC.com as well as a leading cloud mining platform called hashnest.com.

It also currently leads the global blockchain industry in the production of integrated circuits for cryptocurrency mining and mining hardware under the Antminer brand.

Last year, Bitmain’s machines accounted for approx. 67% of the total mining volume of Bitcoin (BTC) with its cryptocurrency mining pools covering almost 40% of BTC’s total mining network.

With its IPO, the company seeks to raise a whopping $18 billion. Institutional investors such as Singapore’s GIC, renowned Sequoia Capital and leading investment firm IDG Capital have reportedly taken a stake in the IPO.

However, despite all the fanfare there have been numerous claims and red flags which make this IPO a risky proposition for any investor to buy into.

5 things you need to know about Bitmain’s IPO (the 5th is a real doozy!)

1. Losing Its Edge

Investment research firm, Alliance Bernstein, released a recent report suggesting that Bitmain was losing the competitive edge which allowed it to corner as much as 85% of the world’s mining market.

According to Berstein’s senior analyst Mark Li, “Bitmain’s dominance is being challenged by competitors such as Canaan Inc. and Ebang International Holdings Inc., which are also pursuing IPO’s just like Bitmain.”

The report also noted that the demand for crypto mining products has come under pressure this year after Bitcoin’s value was cut by more than half. The effect of this downturn was recently evidenced with Nvidia, the world’s foremost GPU manufacturer, confirming that it will no longer compete in the cryptocurrency mining market.

The current crypto-market situation along with Bitmain’s alleged stockpiling of a large number of its miners’ components rather than selling them has raised questions regarding the Company’s cashflow and long-term viability.

2. Something’s Fishy ‘bout them numbers

Several leading crypto authorities have labelled Bitmian’s Q2 revenue a ‘disaster’ with its posted loss of $600 million.

Samson Mow, CSO of Blockstream, pointed out that although Bitmian has been successful in generating significant large investor interest; the Company has only elected to report its Q1 2018 financial results to its pre-IPO investors. With even those financials showing a company stuck in a very uncomfortable position.

The markets were even less kind to the Company in Q2 2018 and it’s reasonable to assume that the three months leading up to July weren’t the best of times for Bitmain.

Since then, not only has the market has become harder and less profitable; their main supplier placed a stop on trade credit placing Bitmain on pre-payment terms.

While the next generation miners have been rolled out by its rivals, such as Avalon’s 7nm 30T miner; Bitmain’s AntMiner S9 has seen a price drop of 85% from previous highs with recurring questions on its overall performance when compared to its competitors.

According to informed sources, Bitmain was so eager to release a new version of its ASIC to keep their competitive edge that it rushed production which resulted in it’s risk wafers failing on 16nm/12nm/10nm resulting its posted loss.

Speculation is rife that with no new advancements Bitmain’s miners are in real danger of being swiftly outclassed by its competitors.

3. Did Bitmain do a Justin Sun?

It seems that Bitmain got ahead of itself when it made an announcement that several large institutional investors had joined its ranks.

Akin to Justin Sun’s (founder of Tron) habit of telling tall tales by yelling it out from his TRX gilded towers; the media was in a flurry that the likes of Hong Kong’s DST Global, China’s Tencent and the heralded Softbank Group had entered the fray.

The party lasted a mere two days with all three, DST, Tencent and Softbank, vehemently denying any involvement and participation in Bitmain’s pre-IPO investment round.

4. To KYC or not to KYC

As part of its IPO, Bitmain has introduced a Real-name Authentication process for interested buyers of its mining products.

The Company cites “regulatory compliance requirements” with a process requiring prospective mining equipment buyers to provide full KYC (Know Your Customer) documentation before finalising any purchase.

The issue here isn’t to do with KYC but more so with the scepticism on how and when the Company may have to disclosed private personal buyer information.

As noted in their documentation, personal information will NOT be disclosed to unauthorised third parties without consent, however, “…except where required for the purposes of meeting government, legal or other regulatory requirements.”

Is the introduction of this KYC procedure merely a formality linked to the IPO or is it some form of government regulation demanded by China’s legislators?

5. Did someone say Bitcoin Cash?

It has now become very apparent that Bitmain converted the majority of mined Bitcoin into Bitcoin Cash to prop up the price of the token.

This deed was carried out as a consequence of Bitmain’s attempt to alter Bitcoin’s block size with the now failed Segwit2x fork of August 2017.

Subsequent to the fork failure, Bitmain’s founder, Jiihan Wu, actively pushed for the creation of a miner-controlled alternative to Bitcoin; Bitcoin Cash. The rationale behind this move was to mitigate the possibility of falling revenue in the event Bitcoin were to scale using second layer technology such as Blockstream’s Lighting Network.

Bitmain’s propping up of BCH by sacrificing its profit and hodling the coin even in a crypto bear market has put it in a precarious financial position.

According to its financial statement, as of December 2017, Bitmain held about 841.8k BCH and 36.8k BTC, however, three months later, their BCH holdings ballooned to over 1 million BCH.

What this means is that Bitmain are sitting on paper losses of hundreds of millions of dollars from their decision to go all in with BCH. Further exacerbating their position, is their inability to exit their BCH position without instigating a complete collapse in the tokens price.

Although BCH fanboys have shown themselves to be very vocal in their advocacy; the majority of crypto Holders and Traders have no interest in hodling BCH. Which leaves Bitmain holding a huge cache of BCH with neither liquidity nor OTC demand.

The Takeaway

Bitmain are trying to untangle themselves from the mess that they created in the first place. They see the IPO as a means to an end.

Increased competition, lack of transparency, volatile market forces and a strategy of diverting profits to support a failed token have caused increased public scrutiny of not only its Public Offering but more importantly with how it intends to liquidate its significant BCH position.

Unless we see both a turn in market sentiment and BCH’s 3 billionaires (Jihan Wu, Calvin Ayre and Roger Ver) being able to resolve their bickering prior to Bitmain’s IPO; it will be highly unlikely that investor will be FOMOing over this public offering anytime soon.

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This article was originally published in Trade Crypto Live.