Will Bluehole’s purchase of Bitcoin and its involvement in cryptocurrencies be a panacea for listed companies?

Linekong Interactive, a Hong Kong-listed company, announced on July 7 and June 15 that it had purchased a total of 44.2 bitcoins on the open market with its group cash reserves of US$590,000 and US$650,000 , at an average price of US$28,054.

This is the second Hong Kong-listed company to announce the purchase of virtual currency assets after Meitu. This company, which mainly engages in mobile games, has been in a loss-making state in recent years. It invested in blockchain games in 2018. In the same year, CEO Wang Feng also resigned from the position of CEO to "all in" blockchain, doing blockchain media, selling mining machines, opening exchanges, and opening NFT trading markets. However, this year, Wang Feng returned to Linekong Interactive. After Wang Feng resumed his position as CEO, Linekong Interactive began to purchase virtual currency assets and re-focused on blockchain games.

It is not uncommon for listed companies to purchase crypto assets, but in fact it is just a speculative behavior. Most of the time, those who join the crypto industry are just chasing the trend. In fact, when the wind blows, not all pigs can fly. Whether investing in cryptocurrencies or entering the crypto industry, whether you can make money depends not only on luck, but also on understanding and judgment of the industry. Do some listed companies, including Linekong Interactive, have this luck and strength?

Blockchain is not a panacea

Bluehole's main business is mobile games. It was listed on the Hong Kong stock market in 2014. However, the company has been in a loss-making state since 2016.

In 2018, founder Wang Feng announced at an internal meeting of the company’s core members: “Blueport fully embraces blockchain, and its games, hardware, and film and television IP businesses are fully blockchain-based.” He also established a blockchain game division. That year, blockchain games were hot, and Blueport Interactive participated in the launch of two blockchain games, one of which was CryptoKitties’ Crypto Dog, and the other was a pet-raising game Monster Hunt.

Linekong Interactive's choice to focus on blockchain is also related to its declining performance. The year before it chose to "all in" blockchain, that is, 2017, was the year with the largest loss in the four years since its listing. According to the 2017 financial report, Linekong Interactive's revenue that year fell 24.9% year-on-year to only 495 million yuan. The full-year loss in 2017 was 295 million yuan, an increase of 87.9% year-on-year compared with 157 million yuan in the previous year.

However, choosing to go all in on blockchain did not save Bluehole from losses. In 2018, the losses remained, but were reduced.

Looking back at the history of Bluehole, we can see that it was one of the earliest companies in China to bet on mobile games. It made a big comeback with the revenue of the three games "Sword of Kings", "Sword of the Sky" and "Blade of God", and successfully listed in Hong Kong on December 30, 2018. At that time, the company quoted a report from iResearch in its prospectus, saying that the company ranked fifth among all mobile game developers in China and eighth among all mobile game publishers in China.

However, it was unexpected that the revenue of 680 million in 2018 would become the peak and the last song of Linekong. On the first day of listing in 2014, its market value was 3.6 billion Hong Kong dollars. Within 5 months, its market value continued to rise, and once soared to more than 6 billion Hong Kong dollars. At present, the market value of Linekong is 68.4433 million Hong Kong dollars, which has shrunk by 98% from its peak.

In the early days after its listing, Linekong focused its business on the gamification of film and television IPs, that is, the linkage between film and games, and its entry into pan-entertainment. Linekong developed game products with the same names as the films and TV series "Monster Hunt", "Legend of Miyue", "Empresses in the Palace" and "A Chinese Odyssey", but the results were not good.

Subsequently, Blueport continued to choose to chase trends, and the trends it chased were becoming less and less related to games, including game consoles, artificial intelligence speakers, and in 2022, Blueport also began to develop food business, mainly selling pre-prepared glutinous rice and bamboo shoots on the Douyin platform.

This year, Linekong has turned its attention back to blockchain. In February, Wang Feng, who had stepped down as CEO of Linekong Interactive in June 2018 and had been "all in" on blockchain for four years, announced his return to Linekong Interactive as CEO. According to the company's disclosure, starting this year, Linekong will expand its Web3 game platform and establish a joint venture with Consensus Lab in Hong Kong to conduct research in order to enter the Web3 industry.

In February this year, Wang Feng himself also posted on Twitter that Linekong Interactive Hong Kong Branch will jointly launch the Web3 game service platform NAGA with Element. According to the official introduction, this is a blockchain game infrastructure. However, Wang Feng himself said in an interview with the National Business Daily that "blockchain games are not yet mature."

Linekong is not the only one who wants to use blockchain to turn the tide

Meitu is another Hong Kong-listed company that has encountered bottlenecks in its main business and has turned its attention to the blockchain industry. In March 2021, Meitu entered the virtual currency market. The announcement stated that Meitu purchased virtual currencies several times on March 7, March 17, and April 8, 2021, accumulating 31,000 Ethereum and approximately 940.89 Bitcoins, spending US$50.5 million and US$49.5 million respectively. Based on this calculation, Meitu's Ethereum holdings cost approximately US$1,629 per coin and Bitcoin holdings cost approximately US$52,659 per coin.

It is this move that makes Meitu the first domestic company to invest in Bitcoin and the first Internet listed company in the world to use Ethereum as a currency value reserve.

Meitu's main business has always been around Meitu, but since its listing in 2016, Meitu has not yet achieved profitability. Especially around 2018, after Meitu tried its hand in mobile phones, e-commerce, social networking and other businesses, its revenue shrank significantly due to diversification. In the eyes of the outside world, the blockchain sideline is a choice made by Meitu when it could not find a good new path for transformation and profitability related to the "beauty industry." In 2018, it launched a decentralized smart archive based on facial technology. In 2022, Meitu launched Shuzang. Cai Wensheng himself has also made a high-profile investment in the blockchain industry. In addition to his personal buying and selling of virtual currencies, he is also an important investor in the industry. In 2014, Cai Wensheng's Longling Capital invested in OKcoin.

According to the current currency price, Meitu’s Bitcoin is still in a loss-making state, but Ethereum is already profitable.

What other public companies hold Bitcoin?

The public company holding the most Bitcoin is MicroStrategy, which holds more Bitcoin than any other public company, bringing its total holdings to 152,333 BTC since its first purchase in August 2020. MicroStrategy has been increasing its holdings of Bitcoin. When it first purchased Bitcoin, MicroStrategy considered it as part of its capital allocation strategy, when it spent $250 million to purchase 21,454 BTC, detailing that its investment decision was influenced by "factors affecting the economic and business landscape."

Microstrategy CEO Michael Saylor has also publicly stated that he holds 17,732 bitcoins. Unlike most listed companies, MicroStrategy does not purchase bitcoins with its own funds, but raises funds by issuing convertible bonds. Because of this, major financial institutions in the United States have recently begun to buy MicroStrategy shares to indirectly obtain bitcoins.

Just on June 28 of this year, MicroStrategy purchased another 12,333 bitcoins at an average purchase price of US$29,668 per bitcoin.

The second largest listed company holding Bitcoin is Marathon Digital Holdings, the world's largest Bitcoin mining company, which currently holds 12,538 Bitcoins. However, the company said it will sell its Bitcoins in the future.

Tesla was once the second largest Bitcoin holder among listed companies, but in 2022, it sold a large amount of Bitcoin and suffered an impairment loss of $204 million. Although it has been reducing its holdings, it currently still holds 9,720 Bitcoins, making it the third largest Bitcoin holder among listed companies.