A Look At The Problems, Prospects For Crypto Miner Bitmain's Proposed IPO

Cryptocurrencies, the star performers in 2017, haven't had the best run in 2018. Bitcoin, the widely traded and most popular crypto, is down about 54 percent year-to-date.

It's against this backdrop that China's Bitmain Technologies, the leading bitcoin miner and mining hardware manufacturer, has opted to test the IPO waters.

Mining is meant to help bitcoin nodes reach a secure and tamper-resistant consensus and is used to introduce new bitcoins into the system.

The Hard Facts

The company plans to raise $18 billion through the IPO, which would value the company at roughly $40 billion to $50 billion, according to Coindesk.

If successful, the IPO would one of the five largest ever.

The miner had revenue of $2.5 billion in 2017, according to Bloomberg, which quoted Jihan Wu, the company's founder.

In June, a report in China Money Network suggested Bitmain completed a $400 million pre-IPO round, with Sequoia Capital leading the financing. At that time, it was reported the company would seek a Hong Kong listing in September with a valuation between $30 billion to $40 billion.

The Towering Colossus

Bitmain is a giant operator in the mining equipment market, boasting 80-percent share, according to Bloomberg, which cited estimates by Bernstein.

Bitmain designs ASIC chips and operates Antpool, one of the largest bitcoin mining pools. Its Antminers are bitcoin mining ASIC hardware.

The company claims the Antminer S9i, its latest mining gear, is the world's first consumer-grade 16nm ASIC miner and the most power-efficient device of its kind.

The Risks

Despite Bitmain's dominant market positioning, the company is slowly and steadily losing share to rival miners, the South China Morning Post reported, citing Bernstein analyst Mark Li.

Li had cautioned Taiwan Semiconductor Mfg. Co. Ltd. (ADR) TSM — which makes chips used in Bitmain's mining gear — to seek full prepayment and also advised it against adding capacity solely to meet crypto-related demand.

One competitive threat comes from Canaan and Ebang, which is also nurturing IPO ambitions.

Another source of concern: claims that Bitmain has misrepresented the list of its pre-IPO backers. DST Global as well as Softbank have denied participation in the funding round. It is also reported that Temasek is reconsidering its participation following the development casting doubts on the likelihood of a successful IPO.

The sell-off in cryptos, and substantial losses Bitmain needs to book on its ownership of 1 million Bitcoin Cash, a bitcoin fork, have also created anxiety.

Bitmain reportedly purchased the BCH holdings at $900, and the crypto now trades at $517.

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