Mining Giant Bitmain’s IPO May Be In Trouble

Bitcoin may have to wait for its first IPO. 

Bitmain, the world’s biggest cryptocurrency mining company, generated headlines earlier this year when it filed to go public at Hong Kong Stock Exchange. But authorities at the exchange are dragging their feet over its application and are “hesitant” to approve the IPO, according to a report by online publication Coindesk. 

The report cites an anonymous source as saying that exchange authorities are apprehensive about the volatility of cryptocurrency markets and unsure about the sustainability of the revenue models for cryptocurrency companies following the recent drawdown in crypto prices. “There’s a real risk that they could just not exist anymore in a year or two,” the source told Coindesk, adding that the exchange is worried that a cryptocurrency company might “die on them” after being listed. 

Bitmain is backed by star investors, such as Sequoia Capital, and was valued at $15 billion in private markets during its last fundraising round. It is the most powerful firm in cryptocurrency mining and reportedly control 80% of the market for mining equipment. Through partnerships and investments, it is also estimated to control between 42% to 50% of the world’s total mining facilities. 

But this dominance also exposes the company to significant risks. For example, the current drawdown in cryptocurrency markets has diminished values of its holdings. In its IPO filing, Bitmain stated that it had $886.9 million locked up in cryptoassets. This amount included holdings in top coins such as bitcoin, bitcoin cash, ether etc. All of those coins have suffered more than 80% declines in their valuations this year. 

In some cases, the Chinese company has been especially hard hit. After Bitcoin Cash’s (BCH) contentious fork from the original bitcoin blockchain last year, Bitmain boosted its stash of the former coin. It bought nearly 5% of total BCH in circulation at an average price of $900 per coin. Bitcoin Cash, which has undergone a fork of its own this year, is down by more than 90% as of this writing. The company also suffered losses in margins due to the crypto bear market after demand for its mining machines slumped. Last year it had increased prices for its products on the back of a mainstream traction for cryptocurrencies. 

Based on a reading of the Coindesk article, it would also seem that authorities at the Hong Kong Exchange are less than impressed with Bitmain’s efforts to portray itself as an AI chip company in its prospectus. But the company’s AI venture, which primarily does research on making its machines more efficient, constitutes a miniscule portion of its current business. “Actually, what they are is they are just manufacturers, who focus primarily on bitcoin mining machines. If the whole mining thing tanks, these companies will tank as well,” the source told the publication.

Earlier this month, Bitmain laid off the entire staff and shut down operations for its Israel Development Center, which focused on AI research.   

Canaan Creative, another crypto mining firm which had filed to go public, was also hit by let its application expire in November. But Bitmain may still have a chance and this could be a routine delay in approving the application. The company has enough revenue runway from its operations to handle a rejection.

After the cryptocurrency prices run up, the company reported profits of $1.1 billion for 2017. Its CEO had forecast profits of $4 billion this year. But that was before it became imminent that crypto markets were in a prolonged slide.

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