Bitcoin price rebounds, Bitmain restarts IPO

As the price of Bitcoin has rebounded and with the help of a series of news such as Facebook's plan to issue the cryptocurrency Libra, cryptocurrency-related companies that were still in a bear market half a year ago are gradually emerging from the downturn.

Recently, Bloomberg quoted people familiar with the matter as saying that Bitmain, the most important mining machine manufacturer in the cryptocurrency circle, is applying for a listing in the United States and will submit listing documents to the U.S. Securities and Exchange Commission (SEC) in the near future. This is also the company's second sprint towards an IPO after its unsuccessful application for listing on the Hong Kong Stock Exchange last year.

Amid the favorable cryptocurrency market, a reporter recently visited and investigated and found that many of Bitmain's major mining machines have been shown as sold out on its official website. A salesperson told the reporter that due to limited chip production capacity, the production capacity of mining machines is relatively tight, and it is estimated that the supply will not be sufficient until September.

The reporter asked Bitmain about the rumors of applying for listing in the United States and whether chip production capacity would affect the IPO prospects. As of press time, the other party has not yet responded.

Chip production capacity is limited

As the price of Bitcoin skyrocketed, miners' enthusiasm for mining has been reignited, the demand for mining machines has increased, and the cryptocurrency market is undergoing a transition from a bear market to a bull market.

Wang Fan (pseudonym), a senior miner, told reporters that he stockpiled 1,000 mining machines during the bear market last year, and because the price of Bitcoin has been rising this year, he added 500 mining machines to mine. "The higher the price of Bitcoin, the better. The mining machines I bought originally took five months to pay back, but now that the price of Bitcoin has risen, I can pay back in two months." He explained to reporters why more and more people are mining.

Wang Fan said that he mainly uses Antminer and Shenma mining machines. Antminer is recognized as the most stable mining machine in China, followed by Shenma mining machine. Because Bitmain's official website is out of stock all year round, he bought his mining machine from a Sichuan dealer.

Bitmain customer service told reporters that Antminer is a product produced and sold by Bitmain itself, and its official website is the only official sales channel worldwide. Currently, Bitmain does not engage in the model of agency or distributor. Any other individual or group claiming to sell our products is considered as spontaneous reselling.

A merchant who resells Bitmain mining machines told the reporter that Bitmain's mining machines are sold in batches, and he places orders from Bitmain's official website or directly obtains the goods from Bitmain's sales manager. "You bought a small amount, and now you can no longer get the goods from the official website. You can only get some goods from our dealers."

The reporter opened Bitmain's official website and found that all models of the best-selling Antminer S9SE, Antminer S9K and other mining machines were "sold out" and could not be purchased. The reporter asked the customer service when he could buy the mining machine, and the customer service said that there was no release plan at present.

A salesperson from Bitmain told the reporter that there is no stock in the short term. "It will take until September for the stock to be sufficient because the chip production capacity is limited."

The relevant person in charge of Hummingbird Mining Machine said in an interview with reporters that the main factor for the insufficient supply of mining machines is that mining machine manufacturers are not fully prepared for the market. However, whether it is mining machine computing chips or other chips, there is a stocking cycle, and the chip stocking cycle is generally 3 to 5 months, which leads to insufficient production capacity supply.

"Currently, most domestic mining machine manufacturers still focus on self-developed chips." The above-mentioned person said that the Hummingbird mining machine chip is independently developed. In 2018, Samsung in South Korea invested in the production of Bitcoin mining machine chips (invested in the research and development of chips). Bitmain's chips are also independently designed and developed, and are produced by TSMC.

Chen Lei, founding partner of BitBlue Whale, told reporters that the fundamental reason for the insufficient production capacity of mining machines is that the industry is heavily dependent on the digital currency market, and manufacturers have a high risk of pre-scheduling high production capacity. In addition, due to unstable business continuity, their negotiating ability with upstream chip suppliers is also insufficient.

Unstable profit levels

The person in charge of the above-mentioned Hummingbird mining machine told reporters that during the bear market in the cryptocurrency market last year, mining machine manufacturers were basically selling at a loss. But now the price of cryptocurrency has skyrocketed, and compared with the lowest point of the bear market last year, the price of Ant S9 mining machine has reached about 3 times the original price.

The reporter learned from Bitmain's official website that the current price of its Antminer ranges from 1,950 yuan to 12,200 yuan. However, when the price of Bitcoin was at its lowest in the second half of last year, the mining market was very sluggish, and the second-hand transfer price of a mining machine that originally cost about 20,000 yuan was only more than 1,000 yuan.

This is seen by the industry as an embarrassing situation faced by mining machine manufacturers, that is, the performance of mining machine manufacturers is deeply tied to the price of Bitcoin. When the price of Bitcoin rises, the business of mining machine manufacturers will naturally be good. When the price of the currency falls, the manufacturers will sell at a loss. The instability of Bitcoin prices has also planted hidden dangers for the performance of mining machine manufacturers.

When Bitmain planned to go public in Hong Kong last year, it disclosed in its prospectus that the average selling price of mining machines in the first half of 2018 fell compared with the same period in 2017 due to the increased difficulty of online mining, which reduced the expected economic returns of each cryptocurrency mining machine.

The reporter learned from Bitmain's prospectus that Bitmain sold 1.87 million BTC/BCH mining machines in the first half of 2018, but its average selling price has dropped from $1,160 last year to $1,012. The price of other cryptocurrency mining machines has fallen even more severely, from more than $1,400 to less than $1,000.

In addition, the prospectus stated that the gross profit margin of mining machine sales and self-operated mining has been declining in the past two and a half years, from a peak of 52% to 36%. The sharp decline in gross profit margin in the first half of 2018 was mainly due to the reduction in gross profit from mining machine sales, including the decline in the average selling price of mining machines due to fluctuations in the market price of cryptocurrencies, and the recording of a $250 million inventory impairment provision.

Perhaps constrained by the turbulence in the cryptocurrency market and policy uncertainty, Bitmain has begun to enter the AI ​​field, with research and development content including AI chips, boards, servers, various hardware and software products and customer development platforms.

However, Bitmain’s AI efforts did not allow it to successfully list on the Hong Kong Stock Exchange. On March 26 this year, Bitmain issued an internal letter stating that “this round of IPO applications will expire in the near future, and the listing process will be restarted at an appropriate time in the future.”

Hong Kong Exchanges and Clearing Limited (HKEX) CEO Charles Li also made a remark at the World Economic Forum in Davos, Switzerland this year, saying, "You made billions of dollars from business A in the past, but suddenly you said you wanted to do business B in the future, but you haven't achieved any results yet. I think the business model you used to go public is no longer sustainable. Can you still do this business and make this money?"

Back to Bitmain, its A business is obviously the sales of mining machines, while its B business is AI chips.

Bitmain's tangle

After experiencing a bear market throughout 2018, Bitmain was rumored to have laid off employees during Christmas last year. It is understood that the Bitmain BCH development team had more than 40 people at its peak, and the entire team was laid off in this round of adjustments.

A former employee close to the core of Bitmain once told the media that before the layoffs, Bitmain had about 3,000 employees, including more than 1,000 marketing, sales, and administrative staff, and 2,000 mining machine and AI business personnel. In this layoff, the mining machine business layoff ratio is 30-40%, and the AI ​​business layoff ratio is 50%. After the layoffs, the total number of Bitmain employees has been reduced to more than 1,000.

Bitmain has publicly stated that at the end of 2018, Bitmain carried out normal personnel adjustments based on business development, and there have been no new adjustments recently. In the future, it will continue to welcome talents from all walks of life to join it.

In addition, at the beginning of this year, Bitmain co-founder Jihan Wu gradually faded out of Bitmain's management and established his own new company Matrix, an over-the-counter trading and asset management platform.

The reason for Wu Jihan's departure is seen by the industry as a result of a major disagreement with another co-founder, Zhan Ketuan. Wu Jihan's focus is mainly on blockchain, while Zhan Ketuan focuses mainly on chips and AI, so Wu Jihan decided to start a new business. The reporter asked Bitmain about the layoffs and the reason for Wu Jihan's departure, but the other party did not respond.