The real Bitcoin money isn’t just in mining—it’s in supplying the hardware, and when you combine the two, you get one Chinese company that made up to $4 billion in profits last year.
Bernstein Research analysts says China’s privately-held Bitmain made between $3 billion and $4 billion in profit in 2017 thanks to the combination of its own Bitcoin mining operations and the manufacture and sale of mining hardware. And that’s based on “conservative estimates”.
Those are higher profits than U.S. darling Nvidia (NYSE:NVDA).
"But Bitmain achieved this in merely four years, while it took Nvidia 24 years to get here," Bernstein said.
The trick is getting surrounding cryptocurrency mining on all fronts: mining, specialized hardware and chips, chips, chips.
In fact, Bitmain is touted as the pioneer of the creation of Application-Specific Integrated Circuit (ASICS) chips for crypto mining.
It’s a behemoth that few have ever heard of, and according to Bernstein, it has cornered up to 80 percent of the Bitcoin mining hardware market already. The private Chinese company is also believed to control about 40 percent of Bitcoin computing power—globally. Related: Market Commentary Contradictions
The layout of the crypto mining hardware market looks like this, according to Bernstein, and Bitmain is pretty much monopolizing it:
(Click to enlarge)
So as Bitcoin prices rise, it charges more for its specialized hardware. Last year, that meant soaring profits.
This year is a different story, since the Bitcoin crash, and Bitcoin now sitting at half its value of last year’s $20,000 peak.
With all the cash it raked in last year, though, has Bitmain sitting pretty, says Bernstein, and a move to diversify into artificial intelligence chips is intended to get ahead of any risk of another Bitcoin crash or regulatory moves by the Chinese government.
Bitmain is also widening its crypto net in other ways, with a mining pool subsidiary in Israel, new mining farms in Canada and Switzerland, and a potential foray into other cryptocurrencies aside from Bitcoin.
Moving overseas is one way in which Bitmain is trying to outsmart Chinese regulators and the uncertainty they bring with them. That’s why it’s set up a regional headquarters in Singapore.
Bitmain secured the crypto mining market share in terms of chips because it hasn’t been targeting small-time miners; rather, its extra powerful and pricey ASIC-powered mining rigs have targeted massive crypto mining operations. Its ASIC claims to mind Bitcoin 50 times faster than traditional video cards. Indeed, most of Bitmain’s profits were reportedly from the sale of mining rigs.
But while Bitmain holds the top spot in this emerging market, others are moving to close in on it, too.
Samsung Electronics is one of them. Earlier this month, Samsung said it was supplying semiconductors to a Chinese Bitcoin mining hardware manufacturer, whose identity remains undisclosed. It’s also signed an agreement with Baikal, a Russian-backed Bitcoin mining hardware company. Mass production has already begun.
By Julianne Geiger for Safehaven.com
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