Bitmain, the Chinese ASIC manufacturer Bitmain Technologies which controls 45 percent of the computing power, is planning to hold an IPO soon. In the wake of this, BitMEX , a P2P crypto-products trading platform, has carried out an in-depth research of the company’s activities which contains ambiguous results.

To begin with, Bitmain is a strong company. But its competitors, like Canaan who is planning to make mining ubiquitous, are no less stronger and are also going public. Because of this, the company has made a decision to list itself on the Hong-Kong Exchange. The pre-IPO round has gone well with the company raising several hundred million dollars at a valuation of around $14 billion. This is a promising result, as the mining business is currently struggling due to BTC price with some voicing the opinion that you should stop mining and wait.

“Although Bitmain’s share of revenue has dramatically fallen, in absolute terms own mining revenue still grew by 250% in 2017, its just that the 948% growth in equipment sales overshadowed this,” the report reads.

At the same time, the authors of the research indicate that “justified or not, the blockchain space is now regarded by many as one of the next big internet-based technologies and Bitmain is the number one player in this space.”

However, before you get overly excited the authors also add that it is unreasonable to invest in a “just because” manner in companies like Bitmain. One reason is that the market giant according to Bitmex’s estimations is currently making a loss. The researchers have looked into the available financial data and made correspondent calculations.

“The analysis implies Bitmain are 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,” the report reads.

Bitcoin Cash did not work out

Besides, some of Bitmain’s decisions have turned out to be bad bets. Hence having analyzed the operating cash flow and balance sheet of the company, BitMex posited that Bitmain lost close to $328 mln after investing in Bitcoin Cash.

“As the following chart below illustrates, the Bitcoin Cash investment itself is very significant, to the extent that the company spent around 69% of its 2017 operating cash flow on purchasing Bitcoin Cash” and adds that “not only did Bitmain spend a majority of the 2017 cash flow into Bitcoin Cash, they also spent a majority of cash flow from their entire history of operations, into Bitcoin Cash.” Is that a problem? For a private company not really, unless you are one of its managers.  But given that Bitmain is aiming to become public, the data is not that exciting for potential investors.

The research does end on the note that Bitmain has not made atypical mistakes. After all, malinvestments, as well as more human-embedded traits such as greed, fear and emotions, are part of market life, “In a way, some of Bitmain’s biggest mistakes, such as producing too many units and buying too many speculative altcoins in a bull market, are somewhat analogous to the typical behavior of mining company management teams.”

Thus, the conclusion is as usual: Do your homework and analyze before making investments even if BitMex stresses that “we think Bitmain has the ingredients to be one of the great companies in the space” and that “the IPO itself may go well, however going forwards the allocation of investor capital will be key and management may need to improve in this area.”


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