5 Key Takeaways From Bitmain’s IPO Application
09.27.2018

Bitmain is huge in the cryptocurrency industry. Sales of the Beijing-based company’s mining chips and circuits account for 75 percent of the total market. Through its Antpool brand, Bitmain operates the largest mining pools in the world and even sponsors the NBA’s Houston Rockets. The company also funds smaller blockchain startups and has developed a deep-learning AI chip, which has functions in the realms of supercomputing and robotics.

On Wednesday, Bitmain filed for an IPO and published a draft of its application. It’s a big deal for such a prolific and far-reaching blockchain company to break into Wall Street, and notable that a company the makes its money from cryptocurrency mining would seek approval from the established financial sector. If the application goes through, Bitmain will be publicly traded on the Hong Kong Stock Exchange.

Though much of the published application has been redacted, there’s still plenty readers can glean from the available text. This does not include the company’s potential value, but it does note that as of June 2018, the company held assets worth $886.9 million in cryptocurrencies including bitcoin, ether, Bitcoin Cash, Litecoin, and Dash—all gained in connection to mining, and mostly from the sale of mining hardware.

For those who don’t feel like reading all 438 pages of the published prospectus, here are five, key takeaways.

Their greatest assets are in cryptocurrencies and inventory.
Bitmain’s only asset greater in value than its cryptocurrency holdings—which surely fluctuate every day—is its inventory. As of June 30, 2018, Bitmain held around $887.2 million in inventory, which is mostly mining hardware.

While the company’s cryptocurrency assets stayed surprisingly steady between the bull and bear years, respectively, of 2017 and 2018, inventory value increased significantly from last year, when it was at around $558 million. Since inventory depends on mining prices, which are tied to the downward-moving market, having all that inventory could be risky if current cryptocurrency market trends continue.

In fact, Bitmain’s already overdone it with the inventory.
At the start of 2018, Bitmain made the same mistake many were guilty of after the huge cryptocurrency market surge at the end of last year. The company ordered a whole bunch of mining hardware that it wasn’t able to sell as cryptocurrency prices steadily declined. This meant inventory spend outpaced customer pay “in the first half of 2018,” Bitmain wrote in its IPO application.

“We will adjust our procurement and production plan to maintain an appropriate liquidity level” going forward, the application said.

As a public company, Bitmain will have to address other country’s regulations.
The company did this in its application, acknowledging that cryptocurrencies are “commodities” and therefore under the United States Commodity Futures Trading Commission’s regulatory umbrella. In addition to the U.S., Bitmain went on to address federal laws in Canada and Hong Kong, the only three countries the company named as “key markets for our overseas business.”

While importing mining rigs seems to be acceptable under current U.S. law (Bitmain’s “not aware of” any laws prohibiting it), the application also acknowledges how fickle the country can be when it comes to cryptocurrencies: “The legal status of bitcoin and other cryptocurrencies continues to evolve in the United States.” Canada’s federal laws more clearly allow mining and the sale of related hardware, as do Hong Kong’s. It seems like if any of Bitmain’s key markets are going to cause a headache post going public, it will be the U.S.

Bitmain has land in the U.S. where it’s going to start mining farms.
Bitmain operates 11 mining farms in China in Xinjian, Sichuan Province, and Inner Mongolia. As of June, those farms could accommodate close to 200,000 mining hardware sets. Next, Bitmain’s goal is to start new farms in both the U.S. and Canada, with three currently under construction in Texas, Tennessee, and Washington State. A Quebec farm is under “contemplation.”

The Washington farm should be up and running first, with a projected operational launch in the first quarter of next year. Bitmain aims to also build a repair center in Washington for the nearby farm.

However, mining farms only accounted for 0.8 percent of Bitmain’s revenue in June 2018, while mining hardware sales made up the vast majority at 94.3 percent. Jihan Wu, the company’s CEO and cofounder, even announced some new hardware last Friday, including “next-generation” chips and mining machines, showing that hardware remains the company’s big focus.

Bitmain has already raised plenty of money.
In its pre-IPO funding round, Bitmain raised over $400 million; according to a report from this summer, this will help put the company at a possible $14 billion valuation by the time it goes public.