The protracted downward rally of Bitcoin in the first half of 2018 made many people doubt that cryptocurrencies are an innovative breakthrough and promising future of the economy. A strong decline in the capitalization of many coins (almost all of them) seems to soon break down even the most active of crypto enthusiasts. But a mechanism came into motion behind the curtain of the stock charts that made the price of Bitcoin not move up or down, but to the right, desperately resisting the bear trend. This is positive news about the market.
In early June, the largest mining equipment manufacturer Bitmain announced its launch of an IPO outside of China. Jihan Wu, the head of the company, explained this decision by the fact that the tight regulation of the crypto sector and various bans in the country severely restrict the company's activities and impede the further development of new projects.
Literally, two and a half months after the IPO announcement, an official document appeared in the network in Chinese, in which Bitmain describes in detail the financial condition of the company, presents business strategies and investment goals. By the way, there is plenty of information, more than 400 pages of continuous Chinese characters. We will try to present the hottest facts about Bitmain as best as possible.
Briefly about the Company
In the first half of 2018, Bitmain’s revenue amounted to $2.845 billion, and net profit reached $1.123 billion. About 95 percent of all revenue came from sales of 2.56 million mining devices. The remaining income of 3 5 percent came from mining in its own data centers. There are only 11 data centers that extract Bitcoin. They are located in China, in the Sichuan Province, and Inner Mongolia. Each such center can serve up to 20,000 computing devices.
At Bitmain, they recognize that the unprecedented growth in the popularity of the crypto market is directly proportional to the development of the company. They even compare their statistics with those of Coinbase, where the community has grown by more than 20 million people since 2013. The number of orders for computing devices has increased by the same scale. In the first half of 2018, the number of Bitmain customers increased from 6,000 to 80,000. Sales in the international market amounted to 51.8 percent, which is 3.6 percent more than on the domestic market.
With the expansion of the customer base and the increased number of orders, the company was able to increase the staff. As of June 2018, the company already employs 840 full-time specialists. And this is only 30 percent of the whole team. Among them are engineers, developers, designers and software and hardware specialists.
Why Is It Important to Go for an IPO?
When a company reaches this level of sales and becomes world famous, there is a need to attract large investors. To do this, first of all, it is necessary to change the status of the organization from private (only a certain circle of people can become shareholders of the company) to the public (anyone can buy shares). To do this, companies hold IPOs (Initial Public Offering), offering a stake in the company to anyone who wishes.
An IPO is always:
Invulnerability to local regulators;
Increased liquidity of the company;
Increased attraction of large shareholders;
Entering the international level;
Entry on NASDAQ or NYSE lists, which is simply prestigious.
On the eve of the IPO, Bitmain already has two major shareholders: Mikri Zhang and Jihan Wu. Also participating in the IPO is Wang Xiaochuan, CEO of the Chinese search giant Sogou. To be more precise in figures: Mikri Zhang owns 36 percent of the company's shares, and Jihan Wu has a 20.25 percent stake in Bitmain.
The company plans to hold an IPO on the Hong Kong Stock Exchange (HKEX) on the principle of a weighted vote (the strength of the participants depends on the number of shares acquired). The circulation of Bitmain securities on the international market should have a positive effect on the company's capitalization.
Liquid stocks and options, however, are also a powerful tool for attracting valuable specialists and top managers to the company. According to representatives of Bitmain, this is a primary task that they will implement in the near future.
Key Strategies and Business Areas
The IPO documentation details the business development plans outside of China. The main task of Bitmain is the conquest of the West. The American market is seriously attracting experts in the field of innovative technologies. And this means that the company, having reached such a level, is able to offer interesting conditions and a reliable partnership to any specialist.
Now, Bitmain analysts are calculating all possible outcomes of events that could change the future of the enterprise. A successful IPO will allow the company to implement its plans and strategies. In the near future, Bitmain plans to:
Increase investment in research and development of chips in order to achieve an increase in ASIC computing power, as well as greatly reduce power consumption.
Strengthen the position in the blockchain ecosystem by expanding partnerships, as well as increasing its own investment leverage (probably, this is a major investment in crypto startups).
New mining centers in the United States (Washington, Texas, and Tennessee) were commissioned in the first quarter of 2019. A service center for repairing Bitmain equipment will also be open in Washington state.
Collaborate with environmental protection companies. Entering the global market means global responsibility. The company develops systems that least affect the ecology of the planet. Thus, the issue of launching a “green” Bitcoin farm in the Canadian province of Quebec, which will operate from a hydroelectric power station, is currently being resolved.
Of course, Bitmain’s trump card is the complete development of unique ASIC chips that will form the basis for future projects. Therefore, the company continues to invest in the development of artificial intelligence and promotes it through its advantages in the development of ASIC chips. This is directly related to virtual and augmented reality, face recognition technology and analyzing giant arrays of data. In the future, it is planned to release not only ASIC chips for mining but also additional equipment for working with AI technologies, virtual reality and so on. The company's specialists are already working on creating the next generation of ASIC chips using the 7 nm process technology, which will bring computing capabilities to a new level.
About Law and Pricing
In case of a successful IPO and entering the international market, the question of the legality of some projects in a particular country remains open. The representatives of Bitmain say: “In the United States there is no law that would prohibit the import of mining equipment by individuals and legal entities, as well as their sale or production within the country. The position of Bitcoin and other cryptocurrency assets is in limbo, however, due to the uncertainty of U.S. federal laws. The jurisdiction of each crypto asset is determined by the regulators individually, based on the characteristics and specifics of use."
There is no exact data on the cost of devices issued in accordance with the requirements of international quality certificates, but the company assures: “We study the market value of the currency, competitive prices, projected income and the relevance of mining farms in order to determine the correct cost of production. For this, we use a sliding pricing strategy, which is now quite common in this area.”