Who is going to step up to help Bitmain?


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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.

  1. 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.

  2. 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.

  3. 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?

-Pomp


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THE RUNDOWN:

That Crypto Exchange That Lost Access to Over $144 Million? It Just Misplaced Another $500,000: Canadian crypto exchange QuadrigaCX, which is already embroiled in one of the biggest controversies to hit the cryptocurrency world in years, has added some new problems to the list. Earlier this month, the company lost access to at least $144 million in Bitcoin and other cryptos (some reports place it as high as $195 million, when missing cash is added in) when the company founder reportedly died and was the only person with the password to the cryptocurrency wallets. Now, officials say, the exchange accidentally misplaced another $500,000 Canadian ($352,783 in U.S. dollars). Read more.

It’s Time to Consider Crypto, Says Pension and Endowment Adviser: Institutional investors should consider dipping their toes into cryptocurrencies, according to Cambridge Associates, a consultant for pensions and endowments. “Despite the challenges, we believe that it is worthwhile for investors to begin exploring this area today with an eye toward the long term,’’ said analysts at Boston-based Cambridge in a research note published Monday. “Though these investments entail a high degree of risk, some may very well upend the digital world.’’ Read more.

Bitmain Announces Energy-Efficient ASIC Chip for Mining Bitcoin and Bitcoin Cash: Chinese mining giant and ASIC hardware producer Bitmain has announced its next generation 7nm (nanometer) ASIC mining chip, according to a press release published on Monday, Feb. 18. The new mining hardware, BM1397, is designed for mining cryptocurrencies that use the SHA256 algorithm for their proof-of-work (PoW), such as Bitcoin (BTC) and Bitcoin Cash (BCH). BM1397 requires less power for mining cryptocurrencies, representing a 28.6 percent improvement in power efficiency in comparison with the company’s previous 7nm chip, BM1391. The new chip will be used in new Antminer models — S17 and T17 — which will be revealed later this year. Read more.

Coinbase-Supported Bitcoin Debit Card to Shut Operations in April: The Shift Bitcoin debit card, which allows United States cryptocurrency exchange Coinbase users to spend BTC using a Visa debit card, is reportedly shutting down its operations. The development was posted to Reddit on Feb. 18, with the upload of an email purportedly from the Shift team. Shift, which launched in November 2015, was one of a steadily-increasing cohort of cryptocurrency debit cards, with multiple providers now issuing them in various countries. Read more.

Indonesia Passes Rules for Trading of Cryptocurrency Futures: An Indonesian financial watchdog has set out new regulations for the trading of crypto assets on futures exchanges in the country. The Commodity Futures Trading Regulatory Agency (Bappebti), an agency under Indonesia’s Ministry of Trade, announced the new rules Monday, stating that cryptocurrency futures exchanges must be registered and approved before operating. The agency has also confirmed that crypto assets are officially recognized as commodities that can be traded on the country’s futures exchange – a decision first reported last June. Read more.


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