Bitmain filed its intention to launch an IPO earlier today. BitMEX released an ‘unboxing’ report for the Bitmain IPO, although certain critics claim the report lacks crucial information.
Unboxing Bitmain’s IPO (Part 2)
* New IPO prospectus published
* Financials for Q2 2018 revealed
* US$395m net loss in 2018 Q2
* US$0.5 billion spent on failed chips
* US$785m raised from new investors – Bitmain has a strong balance sheet nowhttps://t.co/YG7HCgCLqt pic.twitter.com/aAxv5GYNXx
— BitMEX Research (@BitMEXResearch) September 26, 2018
It’s no secret that Bitmain wants to launch an IPO. The Chinese bitcoin mining hardware giant is currently in the pre-IPO phase. The dreams of a Bitmain IPO became one step closer to reality earlier today when the company publicly filed key information about its IPO, including the names of pre-IPO investors along with Bitmain’s Q2 2018 financials.
Cryptocurrency exchange BitMEX released a report on the Bitmain IPO through its BitMEX Research division, claiming that. BitMEX admitted that Bitmain had suffered financial setbacks in Q2 2018, but that the company has “a strong balance sheet now.”
Key information revealed in the BitMEX Research report on the Bitmain IPO include:
- Bitmain had a net loss of $395 million in Q2 2018
- Bitmain spent $500 million on failed chips
Bitmain has raised $785 million from new investors, which is why “Bitmain has a strong balance sheet now”
You can read BitMEX Research’s full report on the Bitmain IPO on their blog.
BitMEX Research’s report admits that Bitmain lost money in Q2 2018. However, they don’t see it as a serious issue for the company: they only see it as a short-term setback for a company that is otherwise experiencing strong growth:
“The losses only relate to a period of one quarter and business conditions may change. One quarter of losses should not be a significant concern to long term investors, especially in a volatile business like crypto-currency mining.”
Nevertheless, BitMEX admitted that Q3 2018 would also likely be “a loss making period” and that it would be challenging for Bitmain to move back into the black by the end of Q3 2018.
In their IPO prospectus, Bitmain also expressed surprising honesty about its strategic mistakes. Bitmain acknowledged that it had made errors in the past and that it planned to resolve those errors moving forward:
“In early 2018, we anticipated strong market growth for cryptocurrency mining hardware in 2018 due to the upward trend of cryptocurrencies price since the fourth quarter of 2017, and we placed a large amount of orders with our production partners in response to the anticipated significant sales growth. However, there had been significant market volatility in the market price of cryptocurrencies in the first half of 2018. As a result of such volatility, the expected economic return from cryptocurrency mining had been adversely affected and the sales of our mining hardware slowed down, which in turn caused an increase in our inventories level and a decrease in advances received from our customers in the first half of 2018.”
Moving forward, Bitmain plans to solve this problem by actively balancing its business growth strategy, inventors, and cryptocurrency asset levels “to ensure a sustainable business growth and a healthy cash flow position.” In other words, they won’t move forward assuming that the crypto mining space will continue growing at a steady pace, and they’ll take precautions to avoid another downturn.
Bitmain’s IPO Prospectus Is Missing Crucial Information
Certain critics have bashed Bitmain’s IPO prospectus and the subsequent BitMEX Research unboxing report. They claim that both the prospectus and the BitMEX Research report are missing crucial information about the company.
Much of this criticism comes from an expected source: noted Bitmain critic BTCKING555 (@btcking555) on Twitter, who has attracted attention in the crypto community over the past few months for criticizing multiple aspects of Bitmain’s business.
In a series of tweets from earlier today, BTCKING555 trashed Bitmain’s IPO prospectus for excluding certain information.
1/2 @BitMEXResearch missing KEY points :
* Q3 Losses close to -$800 mln as S9 prices plummet more
* Crypto Holdings (mainly BCH) reported at COST(!) i.e $900/BCH and NOT $450/BCH (see page 11 of prospectus – treatment) meaning extra $450 MLN LOSS NOT REPORTED pic.twitter.com/NbkVUpuHRW
— BTCKING555 (@btcking555) September 26, 2018
BTCKING555 claims that Bitmain is committing fraud by moving losses from Q2 to Q3, for example, and tricking investors into thinking that Q2 2018 wasn’t as bad as expected.
In a follow-up tweet, BTCKING555 criticized the BitMEX research report, claiming that it was “missing key points”, including all of the following:
- Q3 losses are expected to be close to $800 million as S9 prices plummet more according to BTCKING555
- Bitmain’s crypto holdings (which mostly consist of BCH) were reported at cost, which means they were reported at $900 per BCH and not at $450 per BCH; Bitmain has been largely criticized for holding a significant amount of Bitcoin Cash (BCH); this BCH was mentioned in the prospectus, but it was reported at the price at which Bitmain bought it ($900) and not the price BCH is at now ($530, or slightly higher than the $450 reported by BTCKING555)
- BTCKING555 also derides the BitMEX Research report for ignoring the impending lawsuits from pre-IPO investors; although Bitmain hints at this in its prospectus, mentioning “significant volatility”, BitMEX Research missed it in their report
Here’s how BTCKING555 concluded his latest rant against the Bitmain IPO:
“Summary: there is no way @HKEXGroup will go anywhere near company marred with scandals, misreporting to investors and potential lawsuits. On the other hand investors will look at deteriorating margins, (not reported) BCH losses and will have second thoughts. #bitmainipo”
HKEX is the main stock exchange in Hong Kong, and it’s where Bitmain’s shares would presumably be listed after an IPO.
The BCH losses are a crucial point for BTCKING555. The Bitmain IPO prospectus reports its BCH stash at cost, assuming that BCH is worth about $900 apiece. In the last month, BCH has dropped to around $450 apiece, although the price has recently surged to around $530 as of today. Regardless, BTCKING555 claims Bitmain is misrepresenting its assets by claiming its BCH stash is worth more than it really is.
What’s Going On With Bitmain’s IPO?
There are two sides to this story. Depending on who you believe, your opinion of a Bitmain IPO can vary widely.
- If you believe BTCKING555, then Bitmain is committing fraud and rushing towards an IPO in order to “cash out” before investors realize that the company is in “bankruptcy”
- If you believe BitMEX Research and Bitmain’s IPO prospectus, then Bitmain is encountering some short-term losses in Q2 and Q3 2018 amidst a struggling cryptocurrency market, and they fully expect to rebound from the short-term losses in the long-term
Ultimately, we’ll know more about this story as Bitmain continues to push towards an IPO on the Hong Kong stock exchange.