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Michael Kern is a newswriter and editor at Safehaven.com, Oilprice.com, and a writer at Macro-Investing.com.

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Bitmain’s IPO Is Not Looking So Hot Right Now

Bitmain

Bitmain, Canaan Inc., and Ebang International Holdings, three of the most well-known and largest producers of crypto-mining gear on the planet, are looking to go public, and the timing couldn’t be worse. With bitcoin’s less-than-stellar performance this year and uncertainty beginning to weigh on the Chinese tech sector as a whole, there is no doubt the trio will be facing an uphill battle.

While Canaan and Ebang have already shaved off hundreds of millions in their targeted valuations since their initial filings, Bitmain, which is expected to reveal its plans next month, has found itself caught in a flurry of controversial news.

Bitmain’s lofty goals, and the ambitions that go with it, are quickly fading. It’s had a tough month, and it only seems to be getting worse by the day.

Imaginary investors, bitcoin cash and misleading financials

Bitmain’s onslaught of less-than-flattering press began with a report of the company’s supposedly successful pre-IPO funding round. The report suggested that Bitmain secured $1 billion in investments from DST Global, Tencent and SoftBank - a claim that was quickly called into question and later debunked when all three companies denied involvement.

To make matters more complicated, Bitmain’s financials revealed the mining giant may have misled potential investors in the pre-IPO funding round by not providing a clear picture of the company’s profitability.

Additionally, the investment deck highlighted a worrying stake in bitcoin cash. With over 1 million BCH in holdings purchased at $900 per coin, the company has effectively lost half a billion dollars in the past three months. More troubling, however, is that because its holdings in the cryptocurrency are so high, a swift exit would not be possible without sustaining even greater losses due to the illiquidity of the asset.

Though Bitmain’s BCH holdings should come as no surprise considering CEO Jihan Wu’s stance on the subject, it certainly presents a problem for would-be investors who do not agree that ‘BCH is the real bitcoin.’

The unfolding drama is not without recourse, either.

Singapore-based Temasek, which holds over $308 billion in assets, is rumored to be considering an exit from its pre-IPO funding commitment citing the company’s misleading financials.

While the withdrawal isn’t set in stone just yet, sources suggest that the collapse of the deal is very likely.

A withdrawal from Temasek, one of Bitmain’s largest investors, could lead others to follow.

Bitmain is losing its tech edge

The misleading financial may have been just the beginning, however.

report from market research firm Sanford C. Bernstein & Co. brought into question Bitmain’s technical edge which allowed it to corner the mining market in recent years. Related: Cannabis Stock Valuations Are Spiraling Out Of Control

“The competitiveness of Bitmain’s chips is in question,” the report stated, adding, “The Beijing-based company, co-founded by 32-year-old billionaire Jihan Wu, may need to write down the value of its inventory as makers of rival mining gear catch up.”

Chinese financial publication, Caijing, weighed in, as well, with a scathing review of the Bitmain IPO drama.

In addition to the smoke and mirrors move on investors in the pre-IPO funding round, Caijing suggested the only reason for Bitmain’s notable success in recent years was due to Yan Zuo Xing’s chip designs. And since Yang left the company to begin his own competing mining company, ShenMa, Bitmain has struggled to remain relevant.

Samson Mow added to the critique, “Three Bitmain teams abandoned the company in recent weeks: one group from operations and manufacturing, & two groups from their chip design division. One of those groups is actively trying to raise capital to compete with Bitmain. They approached a friend of mine. #BitmainIPO”

Another review of Bitmain’s technical prowess written by Allen Guo of 2048 capital and translated by Samson Mow, CSO of Blockstream, tackles the company’s lack of new developments in its cornerstone Antminer product line, non-competitive power consumption, failed chips and the mysterious disappearance of a rival company.

According to a note in the piece, Bitmain was not particularly happy about the article, requesting that it be removed on more than one occasion.

Related: What Does Capitalism Look Like In North Korea?

The reports carry additional weight following the company’s release of a Monero mining rig back in March. According to reports, the company sold the $12,000 rig with the full understanding that it would be obsolete before the product shipped to customers.

Conclusion

Bitmain is an iconic company within the crypto-space, and certainly as controversial as any other in the limelight. It has seen tremendous success over the past couple of years, but the skeletons are finally starting to emerge from the closet.

With the blitz of problematic news coming to light, the most worrying dilemma may be the impact on the crypto-space as a whole.

Bitmain owns the three largest mining pools, accounting for over 40 percent of the Bitcoin network’s total hash rate. And with Jihan Wu’s affinity towards Bitcoin Cash and tendency for less-than-diplomatic negotiating tactics, going public with the company opens the doors to a whole slew of potential problems.

By Michael Kern via Crypto Insider

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