A case study on Bitmain’s growth, its IPO controversy, connections with Bitcoin Cash [BCH] hardfork and the crash of Bitcoin [BTC] prices.
One of the most awaited and controversial IPOs of the crypto-space – Bitmain is on the run. The company gained popularity because of its intention to raise $3 billion as a part of an IPO in the Hong Kong stock market.
Bitmain Technologies Ltd. designs ASIC chips and manufactures devices used for cryptocurrencies. It is a privately owned company headquartered in Beijing, China, with offices all over Asia and Europe.
Bitmain primarily manufactures ‘Application Specific Integrated Circuits’ [ASIC] chips and mining hardware for cryptocurrency miners. An ASIC is a microchip oarticularly designed for the applications that conclude of specific transmission protocols.
The company also manufactures mining hardware of various cryptocurrencies which are mainly based on the popular mining algorithms. Bitmain produces devices that mine cryptocurrencies such as Bitcoin, Bitcoin Cash Litecoin [LTC], Ethereum [ETH], Dash [DASH], Monero [XMR] etc.
What makes Bitmain different from other companies, is its methodology of manufacturing and marketing its products on unconventional terms [How? Let’s understand!].
Recently, Bitmex a cryptocurrency exchange platform published research based on Bitmain and its controversial declaration of investments.
This post is a deeper dive into the research of Bitmex as well as an opinion on what is Bitmain’s competitive edge? How have they been able to grow so aggressively over the past few years? And what made the company reach its current dominant position in the market. Along with its connections with BCH
Bitmain’s IPO Controversy
At the beginning of August, Bitmain claimed to raise $1 billion and reported a list of notable investors including Chinese tech conglomerate Tencent, investment firm DST Global, and Japan’s SoftBank. Later, in mid-August, Tencent and SoftBank denied the investment, and no comments on the same have been made by Bitmain.
In the first quarter of 2018, Bitmain gained $1.1 billion in pure net profits, the company overtook the growth of Binance, world’s most widely adopted crypto-exchange by $800 million [An indication on how trading companies make lesser than mining hardware manufacturers].
As per reports, Bitmain raised over $400 million prior to its IPO. The company further hinted their plans of raising more funds for a total valuation of around $14 billion by the end of 2018. This sudden growth was
- To race its way up by influencing more miners/crypto-influencers [increasing their consumer base].
- To eradicate its competitors for a monopolistic competition [by pushing its competition out of the market]
Well, it’s not too hard to say, they opted for the latter.
Bitmain’s 2018 quarters
Despite the tremendous growth in Q1, Bitmain started making a loss in the third quarter of 2018, as per the research and analysis by BitMex after evaluating Bitmain’s leaked documents.
Based on the research, the company seems to have drastically reduced the price of its products in Q3. This strategy was employed to beat the competition through price drops and become the sole provider of mining hardware and ASIC chips.
Bitmain rules over the mining hardware market of the crypto-world, due to the rising demands of its products and declining rates. Bitmain’s product line for mining hardware is known as “Antminer” and they have launched several different versions of the hardware over the years such as S7, S8, S9 etc. Presently, S9 is the most popular line of mining hardware in the market.
S9 has an output of 14 Tera Hashes/second where Tera Hashes is a speed indicator of how fast the mining machine can calculate the hash algorithm. As of now, it is the most powerful Bitcoin mining hardware available. According to its specifications (as provided by Bitmain), the hardware can mine 0.03600399 BTC a month or approximately 0.43204788 BTC per year.
Based on the same paper analyzed by Bitmex, over 1.9 million units of S9 were sold in the past 15 months. When we do the math, the 1.9 million S9 sold over the past 15 months could mine up to 820,890.972 Bitcoins in one year.
S9 was introduced by Bitmain in 2015 since then three more products related to Bitcoin mining chip was created. The chips consisted of 16nm, 12nm and 10nm nodes which represent the dynamic power consumption and representative capacitance of the technology node. The released products failed to hit the market due to which it can be stated that Bitmain has not seen progress in its innovation technology after the invention of S9.
While it is more expensive than other mining hardware, both S7 & S9 consume far less electricity than its competitors and consequently, the operating costs are far lower. This is also one of the major reasons why miners with lesser resources use this technology for lower profit margins.
The recent Bitcoin [BTC] market crash has raised many questions in the crypto world. The $4000 drop and loss of over 60 billion USD have some reasons that set well with the Bitcoin Cash [BCH] hardfork and Bitmain’s dominance.
BCH fork and its connection with the BTC crash.
The recent Bitcoin Cash [BCH] hardfork was scheduled for 15th November 2018. The fork took place due to the conflicting consensus change between the community members of Bitcoin Cash. Roger Ver the prominent leader of Bitcoin Cash and Jihan Wu the CEO of Bitmain were on one side while Craig Wright’s nChain team with CoinGeeek the mining giant, on the other.
The blockchain was split into Craig Wright’s nChain implementation and Bitmain’s Wormhole!
BCH split into BCH SV and BCH ABC, the SV community is lead by Craig Wright and ABC is lead by Roger Ver. Both the communities are driven by different visions and authors. The BCH SV community is supported by nChain while ABC community is supported by the core BCH team.
BCHABC community wants to preserve the functions of the original Bitcoin Cash network as opposed to any radical changes. The SV community proposed changes to the network while attempting to restore “the original Satoshi protocol” and changed the existing BCH network structure.
Now that we know why the BCH hardfork took place, let’s understand how the fork led to a BTC crash.
On 13th November BTC fell below its $6400 margin, the coin was still trying to gain momentum until it broke down below the $6k margin to enter the bear’s cage.
OKEx, a Honk-Koin based cryptocurrency exchange which claims to trade over $1 billion of cryptocurrencies daily, was found being involved with Bitcoin Cash futures. As prices of BCH started to tumble, OKEx had an early settlement of its Bitcoin Cash contracts without any warning on Nov. 14.
According to Bloomberg, the exchange said it acted without notifying clients to reduce the risk of market manipulation. The following day $189 million vanished from BTC futures, and $108.7 million from ETH futures. A malfunction at OKex was the start of short-selling of BTC with accelerated with the BCH fork.
Market Analysts had speculated that ABC or SV either of the parties might try to use 51% of hash power to launch a double-spend attack. As the predictions of market sentiments kept rising many people sold their digital asset in order to avoid the risks of monetary losses. The heavy sell-offs lowered the trading volume and dropped the market cap in billions under no time.
After the fork, the block generation of SV was slower than that of ABC. As per the principles of Bitcoin’s blockchain, the longest chain will always be identified as the valid chain and will be mined for rewards by nodes.
BCH ABC was more likely to win the BCH legacy than SV did. At this point, Craig Wright decided to overpower ABC. On 18th November, SV mobilized a large amount of BTC computing power to mine the BSV blocks, which indicates that there was lesser computing power to mine BTC than usual.
By 19th November BCH SV successfully surpassed the block height of ABC. But due to the fall of computational power in mining Bitcoins, there was a panic sell amongst the investors. Large volumes of BTC were sold off, during this time Bitmain played its role in the ABC community to stand against SV which had a large impact on BTC prices.
Bitmain and ABC supporters that own large mining farms turned a large amount of BTC computing power to speed up ABC’s block generation rate. Due to this hashwar, the price of BTC dropped to $4,405 a margin that it hadn’t hit in over 10 months.
- Bitmain launched expensive products, [avg. price ranging from $2000-$2700] and experimented with the innovation of mining technologies amongst which it invented one high-quality product [S9].
- Raised $400 million, and established its foundation in the crypto community.
- Bitmain used the goodwill of tech-giants as investors to build its popularity.
- Gained popularity and claimed to be evaluated at $12 billion for its IPO.
- A net profit of $1.1 billion acquired in 2018 Q1
- Suddenly drops the prices of its products in 2018 Q3
- Speculation: Watches a gain in consumer demand, leading to eradication of competition. Under normal circumstances, hoped that investors would get attracted. Planned to race towards the end of the year and to get funded in billions for its IPO.
- Things that went south [Opinion] – Bitmain bid on BCH way more than they should’ve. In order to keep their support for BCH, the team lost the confidence of the miners. The cost of standing up for BCH was higher than the gains it would’ve encountered with BCH’s support. Bitmain played a huge role in BTC crash, to stand by the BCH ABC fork the team lost its reputation, as well as the Hong Kong Exchange, is now “hesitant” to approve Bitmain’s IPO.