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The Bitmain IPO-Situation

New details about the BitmainIPO fiasco emerged: massive Q2 losses, pre-IPO investors jumping ship / denying involvement, tech team behind S7/S9 left, no new advancements and patents are rendered invalid.

Bitmain is struggling on three different fronts:

1. technological stagnation

Bitmain only survived the bear market of 2015-2016 because of Yang Zuo Xing's chip designs in the S7/S9. These chips captured a large market share. Yang Zuo Xing left Bitmain and started the rival company ShenMa, which launched the pangolin miner with 33 TH/S Bitcoin Hashing Power. After Yang Zuo Xing left, Bitmain was unable to produce any new chips successfully. Bitmain's 16nm BM1X89, 12nm BM1X90, 10nm BM1X93, all failed. Bitmain is working 7nm chips now, we will see how that will turn out. The situation with Bitmain's altcoin miners is similar disastrous. Their Sophon AI chips consume 3x more power than those of their competitors.
Bitmain sued Bitewei (ShenMa) over a serial power supply circuit patent to prevent manufacturers from working with Bitewei. However, in April 2018, China’s State Intellectual Property Office invalidated Bitmain's patent. Reason? Bitmain tried to patent common knowledge/prior art. Today, the Bitcoin mining chip is still the foundation of Bitmain’s business, but since 2016 its new designs of Bitcoin mining chips have all failed:
  • February 2017, the optimized BTC 16nm version of BM1X89 failed.
  • December 2017, the BTC 12nm version of BM1X90 failed.
  • March 2018, the BTC 10nm version of BM1X93 failed.
Therefore, Bitmain still relies on its BM1387 (the S9 miner) from early 2016 to support themselves, while rivals have outpaced its technological performance. For example, the ShenMa M10 could have a power consumption ratio 40% better than that of Bitmain’s.
It is even worse with Altcoins, with Bitmain's Dash,ZEC and ETH miners all consume x2 more power then chips from the competition, the SC chip is the worst with x5 more power consumption.

2. very reckless business moves

Bitmain sold out all of its miners in Q4 2017. Then the company suddenly purchased BM1385 28nm wafers from TSMC for the production of one million miners to produce the new V9 model. At that time, the entire industry was shocked by Bitmain’s move. The BM1385 had been out of production for more than a year. It was an outdated technology. The only reasonable explanation for this huge purchase of outdated chips seemed to be that Bitmain wanted to outrace competitors who still used the 28nm process, but had a better product design. Miners soon realized that the V9 mining machine was actually the S7 mining machine, and the V9 models ended up overstocked. Eventually, more than one million V9 miners, worth 2 billion RMB, were gathering dust in Bitmain’s warehouse. With this move and two more mysterious gambles with wafers, we expect that Bitmain gambled away 900 million USD.

3. a large part of capital is stuck in a highly illiquid and decreasing asset

Bitmain currently holds over 1 million BCH (Bitcoin Cash). As we know BCH has suffered disastrous losses since the beginning of the year and the asset is highly illiquid. There is no sizeable OTC-market for BCH and Bitmain cannot sell it on the exchanges because this would crash the price extremely and possibly lead to the death of BCH. Bitmain made a very big mistake of exchanging most of their BTC to BCH and now they are stuck with it. They must be praying for a bull market right now. This is their only chance. Bitmain is stuck with a huge position of a highly illiquid asset that is rapidly losing value and is now suffering from huge opportunity cost from the mass exchange of BTC to BCH

Summary

The situation for Bitmain is disastrous:
  • the lead engineer left the company and started a competing firm
  • hardware development is outdated and increasingly overthrown by competition
  • a large part of their capital is stuck in BCH

Major companies like SoftBank and Tencent already denied their involvement in the Bitmain IPO publicly. This
could turn out to be one of the biggest exits of our times.


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