Analysis: Why did Wu Jihan sell the BTC.com mining pool? Who is the buyer 500.com?

Wu said author | Colin Wu

Editor of this issue | Colin Wu

On February 16, 500.com Lottery Network announced that it had reached a share swap agreement with Blockchain Alliance, a subsidiary of BitDeer, to acquire BTC.com’s mining pool business (including mining pools, domain names and wallets).

BTC.com has long been the number one in Bitcoin computing power in the 2017-2019 period when Bitmain terrified the crypto industry. With the big split of Bitmain, the former "mainland plate" is scattered everywhere, which is a pity.

The full acquisition press release is as follows:

500.com will issue 44,353,435 Class A common shares, par value $0.00005 per share, to Blockchain Alliance at the first closing, representing approximately 10% of the Company's outstanding shares as of January 31, 2021, in exchange for all of the issued and outstanding shares of Blockchain Alliance Technologies Limited held by Blockchain Alliance after the completion of the reorganization. The transactions contemplated under the share exchange agreement include the transfer of all mining pool businesses under BTC.com of Bitdeer Technologies Holding Company ("Bitdeer" Chinese name: BitXiaolu), the BTC.com domain name and the BTC.com cryptocurrency wallet (collectively, the "BTC.com Mining Pool Business") to the Company. The first closing transaction is expected to be completed by April 15, 2021.

The agreement also includes a bet clause that if the BTC.com mining pool business achieves a net operating profit in fiscal year 2021, 500.com will issue additional Class A common shares to Blockchain Alliance at par value per share. When the net operating profit exceeds $20 million, 500.com may issue up to 22,176,718 Class A common shares, representing approximately 5% of the company's outstanding shares on January 31, 2021. If the BTC.com mining pool business incurs a net operating loss in fiscal year 2021, 500.com has the right to repurchase some of the Class A common shares held by Blockchain Alliance at par value per share. When the net operating loss is greater than $10 million, 500.com may repurchase up to 4,435,344 Class A common shares, representing approximately 1% of the company's outstanding shares on January 31, 2021.

Who is 500.com

500.com is the first Chinese Internet lottery company to be listed on the New York Stock Exchange, with annual sales reaching more than 7 billion yuan. In 2015, due to the Chinese government's rectification of the lottery industry, 500.com took the initiative to suspend its Internet lottery sales business and began to transform, entering the field of Bitcoin mining in January this year.

On January 11, 500.com announced that it would issue additional shares worth $14.4 million to purchase Bitcoin mining machines;

On January 21, 500.com announced that the settlement method for the fixed increase on December 21 would be half US dollars and half Bitcoin (equivalent to about 11.5 million US dollars);

On January 28, 500.com announced that it would acquire Ganzizhou Changhe Hydropower Consumption Service Co., Ltd. for more than US$13.5 million in cash. The company claims to be the largest, most qualified and highest construction standard hydropower blockchain data center project in the country. According to internal statistics in September 2020 (computing power of on-site managed operating equipment/total computing power of the entire network), the computing power carried by the three data centers accounts for 6.27% of the computing power of the entire Bitcoin network.

On February 16, 500.com announced the acquisition of BTC.com’s mining pool business.

The founder of 500.com is Luo Zhaoxing, who graduated from the Department of Biology of Wuhan University in 1990. Reference article: When 500.com Lottery Network Met Bitcoin

Why BTC.com is for sale

BTC.com was established in 2015, and Bitmain purchased the domain name for about one million US dollars. Pan Zhibiao, the founder of Biyin Mining Pool, was the head of BTC.com Mining Pool, but left in 2017. The head was replaced by Zhuang Zhong, who also left recently to invest in the DeFi entrepreneurial field.

Bitmain used to own two mining pools, BTC.com and AntPool. The latter was mainly used for its own computing power, while BTC.com had more computing power. Until 2019, BTC.com's computing power had long been ranked first in the entire network, and is currently ranked third. It also briefly returned to the top position in 2020.

On the evening of December 16, 2020, the two founders of Bitmain, Jihan Wu and Zhan Ketuan, reached an agreement. Jihan Wu left with BTC.com, BitDeer and overseas mining farms at a valuation of US$90 million. The big split of Bitmain started: Zhan Ketuan returned, Jihan Wu left with B pool and Deer in cash (Bitmain Series 26) However, in the subsequent farewell letter of Jihan Wu and the interview with the CEO of BitDeer's new company, BTC.com was not mentioned, and it is suspected that acquisition negotiations have already begun.

In fact, as early as the beginning of 2020, information about the possible sale of BTC.com was circulating in the industry (it was before the halving, Bitmain was in operational difficulties and laid off employees), but there was no suitable buyer. With the entry of the three major exchange mining pools, the mining pool market has become difficult to make a profit as a whole, and each company can only rely on other financial or mining businesses to make a profit. In addition, the mining pool code is open source, the threshold is low, and it is difficult to see the prospects, so selling is a reasonable choice.

Currently, Ant Pool belongs to Zhan Ketuan, BTC.com has been sold, and Wu Jihan no longer has any mining pool business.

500.com is transforming its business and increasing its stock price, and the most suitable buyer has finally appeared. Influenced by the acquisition news, 500.com's current market value has risen to 1.189 billion US dollars. Wu Jihan can get shares worth 118.9 million US dollars. The value of the shares will rise with the increase in market value, and there will be more benefits if the bet is completed. From a financial perspective, it is indeed a good deal.

Faced with 500.com’s eagerness to transform its business, Wu Jihan sold the assets in a crowded track at a high point. 500.com won BTC.com, which is also the only mining pool that can be obtained and ranked in the top. However, for 500.com, the future challenges are not small. Can it maintain its leading position in Bitcoin computing power in the fierce competition and develop related emerging businesses? In particular, this year, in addition to exchanges, overseas mining pools of SBI and DCG have also joined the competition.

It is reported that 500.com will retain the current BTC.com team. The relevant person in charge of BTC.com said that he was very happy that BTC.com would join 500.com to continue to expand the blockchain business. After that, BTC.com will maintain the original team and continue to operate as an independent business entity.