Bitmain Purposely Losing Money in Bitcoin Mining Business
BitMEX Research has made a controversial comment concerning Bitmain’s business, which is that it has been intentionally lowering the profit margin of its core business before its IPO.
To date, Bitmain has developed as one of the largest investors in technology. It has invested in Softbank and raised its pre-IPO. The IPO itself is scheduled to take place in Hong Kong and is expected to raise billions of dollars.
At the start of 2018, the platform raised $1.1billion in profits, which is twice of that of Nvidia, a large video game chip manufacture. In comparison, the later raised only $550 million, even with its strong influence over the gaming market. Bitmain’s profitability has enabled it to become of one of the most profitable companies in the global economy, even outside of the cryptocurrency sector. Investors often choose Bitmain for long-term survivability of crypto as an asset class. Investors often allocate many of their resources to enhance profitability and to appeal to toher investors in the public market.
Interestingly enough, in light of the investment, Bitmain decided to reduce profitability. BitMEX researchers published a report describing the intricacies of the platform’s balance sheet, stating that it purposefully decreased its profit market so that it can offer products and services at low levels. This type of strategy is meant to drive competition out of business. As the report finds:
This analysis implies Bitmain [is] currently loss-making, with a negative profit margin of 11.6% for the main S9 product and a margin of over negative $100 on the L3 Product.
“[These] low prices are likely to be a deliberate strategy by Bitmain, to squeeze out their competition by causing them to experience lower sales and therefore financial difficulties. In our view, herein lies the key to one of the main driving forces behind the decision to IPO. A successful IPO may increase the firepower available to continue this strategy and eliminate an advantage rivals could have by doing their first IPO.”
For Bitmain, it is crucial to drive competition down. This way, the platform will be able to develop a dominant stance over the cryptocurrency mining sector. And, as that sector grows, the platform will be able to develop a larger gain in profitability as well. At the end of the day, it is all about strategy over the long term, even if the short term impact may be negative.