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Bitmain appears to be suffering from the bear market.
The cryptocurrency mining empire was responsible for more than 50% of all ASIC mining equipment at one point and had captured billions of dollars in revenue during the bull market. The recent downturn in prices over the last 14 months has put the company under immense pressure though.
Here is what we know so far:
Bitmain reportedly made $1 billion in profits in the first half of 2018, which continued the company’s impressive financial performance from 2017.
Bitmain began preparation for an IPO on the Hong Kong Stock Exchange during Q2 2018. This process requires them to file documents and information that has become a treasure trove for the media to dissect.
The latest filing reveals Bitmain’s financial performance for 2018 through Q3 (Q4 is not included) and claims the company booked $3 billion in revenue and $500 million in profits.
This suggests that the company suffered approximately $500 million in losses during Q3 2018 — not exactly the data points you want investors to see as you’re trying to go public.
There are also unverified reports surfacing on Twitter that Bitmain’s crypto balance sheet is down almost 90% from a year ago. The reports state the company currently holds 6,000 BTC and 750,000 BCH (~$130M value). Lastly, Bitmain reportedly had to sell 500,000 BCH over Q3 and Q4 2018 to cover losses. (You can read the tweets by clicking here)
There is a lot to unpack in this data. On one hand, we should be impressed by any company that drives $500 million in profits through three quarters of a year. On the other hand, losing $500 million in a single quarter is scary for a company that operates in a nascent and unproven industry. And to top it off, the bear market got worse in Q4 2018 so it wouldn’t be surprising if the company ends up with losses for the year, rather than profits.
The things to watch moving forward will be (1) the timing of a bear market recovery, (2) the new 7mm ASIC chip that was recently announced, and (3) Bitmain’s ability to access capital markets.
If the bear market finds relief, Bitmain’s financial performance should stabilize. The mining business is heavily tied to price and mining difficulty, which means things get ugly when price is in a free fall like it has been or the last 14 months. At this point, the company needs to stop the bleeding before it looks to drive impressive profitability again.
Bitmain just announced a new, more efficient ASIC chip. If the product works as promised, the company should see a small uptick in revenue from (a) repeat customers upgrading and (b) new customers looking for a mining advantage. Unfortunately, I wouldn’t expect to see a large adoption of this new chip immediately — we are still in a bear market so less people are interested in mining and it will take a few months for word to spread that the chip is in fact better.
The company is losing money, the balance sheet is shrinking at an alarming rate, and the market conditions suggest there is no relief in sight. The leadership team has already executed the necessary steps to cut their burn rate (they laid off a significant percentage of their staff late last year), but they aren’t out of the woods yet. Whether Bitmain ultimately goes public or raises more capital in the private market, they have to do something to ensure their sustainability, while increasing the optionality they have if the bear market persists for another 12 months.
Remember, no one is safe from the bear market. In fact, larger companies are usually more susceptible to the negative side effects because they can’t be as nimble and responsive as smaller teams. Although Bitmain’s current situation is not ideal, it appears from the outside that the team recognizes what is happening and is actively taking measures to diminish the long term impact.
Don’t be surprised if the company makes an ambitious move to access new capital within the next 90 days — the big question is who has the stomach to stare the bear market in the face and push more chips in?
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