How the Bitmain IPO and Bitcoin Cash Holdings Controversy Could Effect the Crypto Markets
There was controversy in the Bitcoin Cash (BCH) community this past weekend as more rumblings appeared online about a Bitmain ICO.
How does the ICO affect BCH? Why is there a controversy? Today, we’re catching you up on everything you need to know about the potential Bitmain IPO and the controversy over Bitcoin Cash, including information provided by Crypto Herpes Cat in a Medium blog post that comprehensively covered the issue.
Analyst Tweets Bitmain Pre-IPO Investor Deck Presentation
The controversy started when Samson Mow tweeted out a slide from the Bitmain pre-IPO investor deck. That slide was written entirely in Chinese but provides valuable information about the China-based company.
Most notably, the slide shows that Bitmain sold most of their bitcoin (BTC) for Bitcoin Cash when BCH was priced at $900 per BCH.
“At $900/BCH, they’ve bled half a billion in the last 3 months,” explains Samson Mow.
BCH has been sinking since March, and this has clearly affected Bitmain’s value in a major way. By holding the majority of their crypto funds in BCH, they’re exposing themselves to a potential problem if BCH runs into trouble.
Could BCH run into trouble? Absolutely. In fact, a devastating exploit was quietly fixed earlier this year – but only because an outside developer spotted the exploit.
Bitcoin Developers Alerted BCH Devs to a Devastating Exploit
BCH was hit with perhaps the worst news in its history last week when a bitcoin core developer revealed how he alerted the BCH team of a devastating exploit.
We recently discussed the issue comprehensively. Basically, what happened was a massive change to the BCH protocol got approved with little discussion on GitHub. That change rewrote a massive amount of BCH code. A bitcoin core developer analyzed the update and found an exploit within 10 minutes. That exploit would allow BCH transactions to be exploited, crippling the network and potentially killing BCH. That developer alerted the BCH team of the issue, and the exploit was patched.
The problem with this exploit, of course, is that Bitmain holds much of its value in BCH. If this exploit hadn’t been quietly fixed, then Bitmain could have lost its entire crypto holdings.
“If Bitcoin Core devs didn’t disclose the Bcash vulnerability, it could’ve wiped a billion dollars off their balance sheets,” explains Samson Mow on Twitter.
The Bitmain IPO is a Risky Investment Because of the Company’s Large BCH Holdings
Bitmain is one of the world’s most profitable and intriguing companies. However, Mow believes investing in a Bitmain IPO is a bad idea.
“The Bitmain IPO is incredibly risky for any investor to buy into. The potential for massive losses are just around the corner as they have no idea how to maintain BCH, but are all-in. Play stupid games, win stupid prizes.”
The investor slide posted above also highlights another interesting point: Bitmain claims to hold 11% of all Bitcoin Cash in circulation. This was previously believed to be true (as outlined by Crypto Herpes Cat in a March 1 blog post). However, now we have confirmation.
Bitmain Made a “Monumental Error” When Swapping BTC for BCH
There’s ongoing debate over what the investor slide mentioned above means for Bitmain. Some believe that it simply indicates that Bitmain’s mining profits are now paid in BCH – not BTC.
Others, however, believe Bitmain swapped nearly its entire BTC portfolio for BCH. This decision, if true, would have been a “monumental error”, as explained by Crypto Herpes Cat.
One Twitter commenter compared it to selling your gold “in exchange for yellow plastic.”
However, it seems Bitmain may not have actually swapped BTC for BCH. They may have just collected it through normal company activities over time. Here are some of the ways Bitmain collected so much BCH over the past year:
- Bitmain held BTC on August 1 and received BCH coins due to the fork.
- Bitmain is a primary miner (they run Antpool). Some suggest Bitmain also operate “Unknown” mining pools. Bitmain, through mining activity on Antpool, was able to collect a large amount of Bitcoin Cash through ordinary mining activities. They did not sell this BCH.
- Bitmain purportedly exploited the Emergency Difficulty Adjustment (EDA) to “strip mine” BCH.
- Bitmain accumulated large amounts of BCH through their hardware business (selling miners and ASICs). These profits have been tracked to two “sales wallets”. Bitmain hasn’t sold any coins in these wallets.
- There have been suggestions of artificial price support and pumping on exchanges, increasing the price of BCH short-term.
- Bitmain has had an early policy of hoarding BCH and not selling BCH on the market like they would with their other crypto holdings.
All of these actions – at least according to Crypto Herpes Cat and other Bitmain critics – have caused Bitmain to accumulate an enormous amount of BCH.
Bitmain has accumulated so much BCH that it’s becoming a problem – and not just because BCH’s value has been cut in half over the last three months.
How Does This Affect Bitmain’s IPO?
How does any of this information affect Bitmain’s IPO? Crypto Herpes Cat lists two key points that have occurred since the pre-IPO slide ended on March 31, 2018:
- Bitmain has attempted to try and start divesting their BCH holdings and realize profits on their held coins
- Bitmain has continuously attempted to create their next gen SHA256 ASIC
These are described as “two very major pieces of the puzzle.”
Bitmain is Trying to Divest Its Holdings
It’s believed that Bitmain is trying to divest their BCH holdings by selling coins on the market. However, the Bitcoin Cash markets are purportedly not liquid enough to absorb the number of coins Bitmain continues to hold (around 700,000 BCH).
The BCH OTC market is small compared to the BTC OTC market.
As a result, “Bitmain is stuck with these coins or they risk dumping the entire market and hurting the coin permanently.”
It’s believed that Bitmain has been able to divest 20% to 25% of their BCH holdings. They are also believed to be selling some of their mined BCH.
BCH is sliding to new lows, and the opportunity cost of not mining or holding BTC is at an all time high. That means it has become increasingly difficult for Bitmain to divest its holdings.
The Next Generation Antminer
Holding onto too many BCH coins is just one problem facing Bitmain. The other problem is that they’re struggling to maintain their competitive edge over the crypto mining hardware market.
The fact is, we haven’t seen a new Antminer in a while. Is Bitmain struggling to produce the next generation Antminer? Crypto Herpes Cat certainly thinks so. He also believes that the company is having trouble developing its AI mining algorithms:
“We have pressure on the hardware business side. Things are also not going well so far with their AI efforts. Speaking of their AI efforts, remember the Bitmain B3 miners that were specifically made for a PoW algo that was friendly to AI ASIC chips?”
We’re still waiting for the Antminer S11 – or whatever the next SHA256 miner from Bitmain would be.
All of This Suggests Bitmain Could Be Rushing Towards an IPO to Pull “The Exit to End All Exits”
Finally, Crypto Herpes Cat gets to the big point: because of all of the information listed above, Bitmain is rushing towards an IPO.
A Bitmain IPO is “the exit to end all exits”, according to Crypto Herpes Cat:
“You have a huge cache of BCH that has no liquid markets and no OTC demand. You have a mountain of ASICs that lose value as the ROI decreases on the Antminer S9 and the BTC mining difficulty continues to rise. You’re burning capital to try and develop an S11 (or next SHA256 miner). You have a, so far, unsuccessful transition into the AI marketplace. You have a persisting bear market.”
For all of these reasons, Bitmain is allegedly seeing an IPO as a way to “dump their bags” and offload their low-value cryptocurrency.
“It will be the exit to end all exits,” sums up Crypto Herpes Cat.
Ultimately, Bitmain and Bitcoin Cash have plenty of critics. Crypto Herpes Cat is one such critic, and he cites evidence to suggest that BCH is in trouble, including evidence dating back to March 1 that a large amount of BCH was controlled by one company – Bitmain. That company is now struggling to divest its BCH holdings while also struggling to innovative in the crypto hardware space. All of this could be big trouble for Bitmain – and big news for a potential Bitmain IPO.
The full writeup by Crypto Herpes Cat is worth a read here.