One of the most powerful, controversial, as well as secretive cryptocurrency companies in the world just opened its books for the first time. The virtual currency mining firm, known as Bitmain Technologies, which was co-founded by billionaires Jihan Wu and Micree Zhan, released its first public financial statements in a Hong Kong regulatory filling on Wednesday. The disclosure, which also confirmed the intention of Bitmain to pursue an initial public offering or IPO, follows months of speculation about the listing plans of the company, as well as its potential vulnerability to a more than $600 billion (Dh2.2 trillion) rout in digital assets since January.
Highlights of Bitmain filing
Some of the highlights of the filing of Bitmain are:
The profit rose almost ninefold to $742.7 million in the first half from a year earlier;
The revenue rose about tenfold to $2.8bn in the same period;
Adjusted return on equity of 58.9%;
Bitmain held approximately $886.9m of cryptocurrency assets at the end of June or about 28% of the total assets;
The firm also recorded an impairment loss of $102.7m on crypto assets in the first half; impairment provision on the inventory of $252.7m;
Inventories also swelled to $887m from $558 million at the end of last year;
The volatile markets may require important provisions on inventories, as well as crypto holdings;
Mining hardware sales make up to 94.3% of revenue, mining pools 1.5%, the mining farms about 0.8%, proprietary mining 3.3%, and some others 0.1%;
The China International Capital is the IPO sponsor.
Bitmain Technologies, which was founded I n2013, is one of the biggest companies to emerge from the boom in digital assets which propelled Bitcoin to a 15-fold gain last year. As both, the largest operator of Bitcoin mining collective, as well as the dominant supplier of virtual currency mining machines, the company has a huge influence of the global cryptocurrency ecosystem – a role which has troubled members of the community who disdain anything that resembles a centralization of power.
Yet, some questions over the sustainability of the meteoric rise of Bitmain were multiplying recently. The tumble in virtual currency process of 2018 threatens both the profitability of the mining operators of Bitmain, as well as the demand for the custom chips which it sells to some other miners. In the meantime, competition in the mining-gear business has grown more intense.
Rivals of Bitmain also buy IPOs
Two of the biggest rivals of Bitmain, Canaan and Ebang International Holdings are also buying IPOs in Hong Kong as they are looking for funding for a technological arms race. Bitmain takes the risk to lose its competitive edge.
However, for now, Bitmain is still the industry bellwether, with a market share in cryptocurrency mining gear which is estimated by Frost & Sullivan at about 75%. If the company proceeds with the initial public offering, it is going to represent a major test of whether investors view virtual currencies as a temporary fad or an innovation with staying power. A Bitmain listing, together with its myriad public disclosure requirements, may also help in reducing the opacity of an industry which skeptics say is under-regulated, as well as prone to misbehavior.
The managing partner at blockchain investment and advisor company Kinetic Capital, named Jehan Chu, said that from the initial numbers he saw, it is quite encouraging. The firm invested in Bitmain at the time of an earlier round of funding. He added that it is great to have real clarity, validated documents to shed some light on the actual status and performance of the company.
However, Kenetic Capital has yet to disclose a target valuation or say how much it wants to rise from its IPO. Some people who are familiar with the plans of Bitmain said that the share sale may raise as much as $3 billion. The company declined to comment when asked for some details of its listing plans.
Bitmain to work into non-crypto fields like AI
The main product of Bitmain is called the Antminer, which is a server-sized box which sells for a couple of hundreds to a few thousand dollars. Instead of the various parts which make up a traditional PC, Antminers are filled with dozens or even hundreds of high-powered chips, which are known as Asics, which have the function to perform the brute-force number crunching which is needed to verify virtual currency transactions. Also, customers are mostly large mining operators who are in places with cheap electricity.
While Bitmain gets most of the revenue from mining equipment sales, it also runs some of the largest mining collectives in the world, in which members combine their processing capacity and split the rewards.
Wu also said that he wants Bitmain to branch out into non-crypto fields like artificial intelligence (AI), where Asics also play a huge role. In one interview earlier in 2018, he estimated that as much as 40% of the revenue of Bitmain is going to come from AI chips within five years period. But some skeptics, that include the analyst of Sanford C Bernstein, named Mark Li, said a successful push into AI is far from certain.
Also, there is no guarantee that investors are going to flock to the IPO of Bitmain, particularly given the recent weakness in the stock market of Hong Kong.
The benchmark of the city, known as Hang Seng Index dropped 16% from the high of this year in January, which is one of the greatest declines among major markets around the world.