The bull market is coming, the price of coins is rising, and Bitmain is going public again

Bitmain, which failed in its listing on the Hong Kong Stock Exchange, has once again announced news of its IPO.

On June 22, Bloomberg reported that cryptocurrency mining machine giant Bitmain plans to conduct its initial public offering in the United States in July this year.

Bitmain's goal this time is to raise $300 million to $500 million in funds. However, this number has not been fully determined. Previously, Bitmain's goal in the Hong Kong Stock Exchange was to raise up to $3 billion in funds.

Not only did Bitmain lower its target amount, it also made sufficient preparations for the IPO.

On July 4, according to Interface News, Bitmain had completed a large-scale round of employee option contract signings at the end of June, and "almost all employees hold shares."

The new IPO battle is about to begin, and Bitmain is rewarding its three armies. This news has, to a certain extent, mitigated the negative impact of Bitmain's previous large-scale layoffs.

But the better news is that with the price of Bitcoin exceeding 10,000, the cryptocurrency market has shown signs of a bull market, which has not only doubled the price of BCH, which is closely related to Bitmain, but also significantly increased the market demand for mining machines.

According to 31QU statistics, after the failure of the Hong Kong IPO, the computing power war and the impact of the entire cryptocurrency bear market last year, the price of BCH fell to $79. Today, the price of BCH exceeds $400, and its market value ranks fifth.

In addition, on Bitmain’s official website, except for the Antminer S9 Hydro, all other mining machines are shown as “sold out”.

Although Bitmain has been trying to transform into AI, and Bitmain Chairman Zhan Ketuan, who led the listing in the United States, also prefers AI chips, the market value of Bitmain and the success of its IPO are still closely related to BCH and the entire cryptocurrency market.

The last application was 10 months ago.

"This round of our IPO application will expire in the near future." In an internal letter circulated on March 26 this year, Bitmain euphemistically announced the failure of its first IPO.

Bitmain first applied for an IPO on September 24, 2018, when it submitted a 438-page prospectus to the Hong Kong Stock Exchange. The prospectus showed that as of June 30, 2018, Bitmain's total revenue reached $2.845 billion, gross profit reached $1.03 billion, and net profit was $743 million.

Among them, the prospectus quoted a report by Frost & Sullivan, saying that based on 2017 revenue, Bitmain has become China's second largest and the world's top ten fabless chip design company, the world's fourth largest fabless ASIC chip design company, and the world's number one ASIC-based cryptocurrency mining machine company, with a market share of 74.5%.

This is the first time that the outside world has unveiled the mystery of this "dark horse".

However, even for a company as strong as Bitmain, the road to an IPO in Hong Kong was extremely difficult. As soon as the prospectus was issued, it was questioned by both inside and outside the industry.

A report by Wall Street brokerage firm Rosenblatt pointed out that in the context of the cryptocurrency bear market, Bitmain's revenue is too dependent on the mining machine business, and it is questionable whether it can support a valuation of nearly US$30 billion.

In addition, there is also a view that there is no need for Bitmain to announce its listing at this time. It was a move that it was forced to take due to public opinion after the news of the listing of the other two companies came out.

External public opinion continues to ferment, and people inside and outside the circle have doubts about Bitmain's listing.

Especially after Canaan Creative and Ebang International failed one after another, people generally have no confidence in Bitmain's prospectus.

As one of the three largest mining machine manufacturers, Ebang International attempted to go public twice in June and December 2018, but both failed. Mining machine giant Canaan Creative suffered three consecutive failures in 2016, 2017 and 2018.

The pessimistic attitude towards Bitmain’s listing continued until the end of January 2019.

At that time, Hong Kong Exchanges and Clearing Limited (HKEX) CEO Charles Li, who was attending the World Economic Forum in Davos, expressed his opinion: "Is the business model introduced by the proposed listed company to investors suitable for listing? For example, a company made billions of dollars through business A in the past, but suddenly said it would do business B in the future, but there is no performance yet. Or business model B is better, then I think the business model A that you used for listing is not sustainable. Also, if the regulators did not care before, but later began to care, then can you still do this business and make this money?"

"The core principle of the Hong Kong Stock Exchange is suitability for listing," is Li Xiaojia's final conclusion on the IPO of mining machine companies in Hong Kong.

Although Li Xiaojia did not directly name Bitmain, the outside world believes that the subtext is that Bitmain does not meet the requirements for listing.

To make matters worse, in addition to the severe damage to its main mining machine business, Bitmain was also caught up in the BCH fork war at the end of last year.

Previously, an internal investment report from IDG that was circulated online showed that Bitmain exchanged all of its $1.5 billion in cash for BCH. Together with the Bitcoin previously held by Bitmain, the two accounted for more than 85% of its cryptocurrency assets.

In other words, Bitmain and BCH are closely tied together.

The fork war caused the price of BCH to drop from its highest point of $2,500 to $80, a drop of more than 97%. During the same period, Bitcoin also fell to around $3,000. The successive shrinkage of Bitcoin and BCH caused Bitmain's encrypted assets to shrink by nearly 3.5 billion yuan, which was more than 60% less than the financial data shown in its prospectus.

In the cold winter at the end of 2018, there was a wave of layoffs in the cryptocurrency field, and Bitmain, which suffered a series of heavy losses, was not spared.

It is reported that Bitmain's layoffs involve multiple business lines including blockchain, artificial intelligence, chips, etc., and AI business is also included. In this layoff, the mining machine business laid off 30%, and the Copernicus team that led the BCH technology research and development was completely abandoned. The AI ​​business laid off 50%. After the layoffs, the total number of Bitmain employees was reduced from more than 3,000 to more than 1,000.

Even more serious than layoffs is replacing general managers.

Previously, Bitmain has been led by Jihan Wu and Zhan Ketuan. The industry is not optimistic about the "dual CEO" mechanism, and rumors about the two "separating" have been circulating.

The rumors were confirmed on March 26, when Bitmain sent an internal letter announcing the adjustment of its organizational structure. Wang Haichao will serve as the company's CEO, while Zhan Ketuan will continue to serve as the company's chairman and Wu Jihan will continue to serve as the company's director.

In June this year, Wu Jihan announced that he would launch a new startup company, Matrix, at the end of July, aiming to provide cryptocurrency over-the-counter trading services and asset management. Interestingly, it is rumored that Bitmain will be Matrix's largest customer, and Matrix is ​​also seen by the outside world as a product incubated internally by Bitmain.

I have been to the Qionglin banquet, and I have ridden my horse in front of the Imperial Street.

The failure of the IPO is undoubtedly a heavy blow to Bitmain, but in fact, unlike the low-key Bitmain after the failure of the IPO, the former Bitmain was open, inclusive and ambitious.

Bitmain was founded by Jihan Wu and Zhan Ketuan in 2013. Prior to that, Wu was a private equity fund manager and studied economics and psychology at Peking University.

At the time, Zhan Ketuan, a graduate of the Chinese Academy of Sciences, was trying to raise funds for a startup that allowed users to stream TV shows to their computers via set-top boxes.

November 2013 was a critical node for both Bitcoin and Bitmain: during this period, a large amount of funds from China pushed the price of Bitcoin to a peak of $1,100; also in this month, Bitmain launched its first generation mining machine - AntMiner S1.

However, Bitmain, which was about to take off, also experienced a difficult period in 2014, when the infamous Mt.Gox collapse occurred and the entire crypto market collapsed. When the price of Bitcoin climbed again the following year, the situation finally stabilized. As time went on, when a new round of crypto fever began in late 2016, Bitmain ushered in a real take-off.

The cryptocurrency winter caused many early blockchain projects to fail in the womb, but on the other hand, it also made Bitmain a success.

At that time, Bitmain seized the opportunity and, relying on the low cost of batch mining and its ever-expanding scale, continued to insist on the research and development of mining machines and the construction of mining pools and mining farms.

Everything is ready, just waiting for an east wind. This east wind is the recovery of Bitcoin and the entire cryptocurrency market.

In mid-2016, the price of Bitcoin began to stabilize and rise, jumping from around US$300 at the beginning of the year to nearly US$1,000 by the end of the year.

The rise in the price of coins shortened the payback period for mining machines and once again stimulated the desire of miners to mine. The miners who returned again were surprised to find that almost only Bitmain's Antminer remained in the mining machine market. According to Bitmain's prospectus, Bitmain's mining machine market share was 74.5% at the time.

In the same year, Bitmain launched the ninth-generation Antminer S9, which was favored by miners for its excellent computing power, reliable performance and low price. Even today, three years later, the S9 mining machine is still Bitmain's best-selling product, and there are still a large number of S9 mining machines running in the mines.

It is with this mining machine that Bitmain quickly established its "dominant" position in the mining market, with a market share of 70%-80%.

With the help of Bitcoin, Bitmain has transformed itself from an unknown little player to a powerful figure in the entire cryptocurrency circle.

The complacent Bitmain ushered in its own highlight moment until it encountered a bear market again.

Bear market is dormant, waiting for bull market

After experiencing the darkest moments of its IPO application being invalidated and its initial listing failing, Bitmain began to lie dormant and keep a low profile.

As the cryptocurrency market recovers and enters a period of prosperity, Bitmain, a company at the upstream of the cryptocurrency industry chain, has also received good news.

In April this year, Bitmain launched the second-generation 7nm mining machine S17, which was sold out within 5 minutes after it was launched. At this time, Bitcoin miners who had been preparing for the flood season began to gear up to buy new mining machines, prepare new mines, and deploy new computing power. Against the backdrop of "mining machines with more than 30% of the total network computing power will be transported to hydropower areas and ready to go", the new/second-hand mining machine business has also become popular.

Data shows that since April this year, the prices of second-hand mining machines have been rising one after another. Among them, the price of Antminer Z11 has increased by 8,000 yuan (47%), and old models of mining machines such as Shenma Miner M3 and Antminer T9+ have been sold out one after another. The orders for new generation mining machines from major mining machine manufacturers such as Canaan Creative and Shenma Miner have even been scheduled until October.

“It seems like we’re back to the second half of 2017, when the market demand for mining machines was three times the supply,” said Steven Mosher, head of global sales and marketing at Canaan Creative.

Today, when 31QU checked Bitmain’s official website, he found that many of Bitmain’s mining machines, except for S9 Hydro, including S9, S17 and other mining machines, were sold out.

Bitmain, which has a mining pool business, has also made full preparations for the flood season.

According to a previous report by Coindesk, Bitmain has prepared mining machines worth US$80 million to US$100 million (approximately RMB 530 million to RMB 670 million) in advance and plans to deploy 200,000 mining equipment in southwestern provinces of China (including Sichuan and Yunnan) to use cheap hydropower during the summer flood season to mine Bitcoin.

In addition to selling mining machines and preparing for the flood season, there is also new news about AI chips, which is Bitmain's main strategic direction.

On May 7, Bitmain, Fujian Suanyu, and Minglu Technology Group reached a cooperation agreement to cooperate in the fields of artificial intelligence, big data, and other AI application scenarios such as city brain and smart city. On the 19th of the same month, Bitmain also signed a letter of intent for cooperation with Haidian District, Beijing, to accelerate the application of computing chip technology in multiple fields.

On the other hand, in June this year, AntPool, a mining pool under Bitmain, launched a new platform AntPool Labs, opening a new model for mining small currencies.

Various signs indicate that Bitmain seems to be recovering after April this year and is ready for another IPO.

The fate of Bitmain is determined by the price of the currency

Let’s review several important nodes of Bitmain.

Bitmain rose during the rise of Bitcoin in 2016 and reached its peak during the bull market in late 2017 and early 2018.

Its failed listing plan and large-scale layoffs were caused by the bear market since 2018.

By April 2019, the cryptocurrency market including Bitcoin and BCH had recovered, and Bitmain also regrouped and prepared to go public in the United States.

It is not difficult to find that Bitmain’s development history and currency price trend are almost identical.

Canaan Creative, which also failed in its IPO, once said: "The Hong Kong capital market is more concerned about 'sustained profitability'. Our industry is too affected by market fluctuations."

Indeed, in Bitmain’s historical revenue structure, mining machine sales have always been the mainstay: the proportion reached 92.1% in 2017, and further increased to 96.5% in Q1 2018, while self-operated mining, hashrate nests, and mining pool management only accounted for a very small part.

The profit or loss of a mining machine is closely linked to the price of the currency.

Perhaps Zhan Ketuan and Wu Jihan realized this, and as early as 2015, Bitmain began its transformation.

In November of that year, Bitmain released its first AI chip, Sophon, and announced a strategic shift: to focus on artificial intelligence. At the time, Wu Jihan confidently said: "In the next five years, 40% of Bitmain's revenue will come from AI chips."

This is an ambitious AI plan.

It is inevitable for mining companies to transform and open up new AI battlefields, but as a latecomer, Bitmain also faces challenges in the AI ​​chip battlefield. With big companies such as Nvidia, AMD, Qualcomm, and Intel in front of it, and start-ups such as Cambrian Chip behind it, as well as AI companies that started with algorithms such as Megvii and Yitu, Bitmain also faces challenges in the AI ​​chip battlefield.

In addition, Baidu, one of the traditional Internet giants BAT, has been determined to vigorously develop the AI ​​industry a few years ago. Even though Robin Li was poured cold water at the Baidu AI Developer Conference held on July 4 this year, it did not reduce Baidu's determination to develop AI.

But after so much time, people still define Baidu as a search engine, and do not regard Baidu and AI as one.

Bitmain is also facing such an embarrassing situation. Although Bitmain's business covers mining machines, AI, mining pools and other businesses, people still regard Bitmain as a mining machine company.

In April 2019, cryptocurrencies gradually recovered and emerged from the bear market. Bitcoin also returned to over $10,000, a long-lost level, and BCH rose back to $400.

Taking advantage of this favorable trend, Bitmain once again challenged for IPO.

Will it succeed? We cannot predict, but the rising price of cryptocurrencies may help Bitmain realize this dream.

As long as the price of Bitcoin continues to rise, miners do not leave the market, and retail investors begin to pour in, Bitmain's path to listing will be smoother. Otherwise, Bitmain is likely to suffer another Waterloo.

However, there is another issue worth noting. If Bitmain successfully goes public this time, and if the price of its currency falls again, can it withstand the strict regulatory pressure of the U.S. stock market and not flee in a hurry?