Bitmain: A Story of Success
Jihan Wu’s Story
The future founder of Bitmain graduated from Peking University, where he earned dual degrees in economics and psychology. After college, Wu worked as an investment analyst for a private equity firm. He discovered Bitcoin and became fascinated by Satoshi Nakamoto’s white paper. In an interview, Jihan claimed that he was the first to translate the document from English into Chinese, laying the groundwork for his country’s interest in cryptocurrencies.
In 2011, he launched a blockchain news site called 8BTC. Then, in 2013, he and his partner, Micree Zhan, began building integrated circuit-based mining facilities. Bitmain was created that same year and is still a monopoly in the market of specialized integrated circuits (ASICs) for crypto mining.
The Birth of a Monopoly
ASIC-based hardware made a splash immediately. According to the company’s financial documents, Bitmain generated $2.5 billion in revenue in 2017 and recorded a staggering net profit of $1.1 billion in Q1 2018. Approximately 96% of the revenue came from mining equipment sales, and 4% was from mining and other services. Antminer’s line is estimated to account for 85% of the global market.
In 2018, there were reports of a $1 billion pre-IPO funding round, with rumors leaked to various media from an anonymous WeChat blog claiming that Tencent and Softbank were the leading investors. However, both tech giants later denied their involvement in the deal.
The documents listed the U.S. hedge fund Coatue Management and the Singapore government-backed investment fund EDBI among the investors. Bitmain had also previously received investments from venture capital funds IDG and Sequoia Capital in June 2018, when it raised $400 million in a Series B funding and another $50 million in an initial round of fundraising in September.
In a presentation to investors, Bitmain said it planned to file IPO materials with the Hong Kong Stock Exchange by the end of August. The equipment company claimed it would be worth $30-40 billion in three years. Bitmain was valued at $14 billion in the run-up to the IPO. A spokesperson told Forbes via email that they do not wish to comment on those numbers for now.
Hash Power Consolidation
In addition to being considered the gold standard for miners, Bitmain has interests in other areas of the blockchain ecosystem, including:
- platforms for accepting payments in digital currencies
- crypto exchanges
- digital wallets and mining pools
At the same time, there is a very unpleasant trend for users of Bitmain hardware – its value has fallen by 90% in less than a year. This sharp drop can be explained by three factors:
- Correlation with the worth of BTC (at times when it falls).
- The increased difficulty of mining due to limited supply.
- Rising electricity costs, mainly in China.
The last point is why Bitmain built a $500 million crypto mining farm in Rockdale, Texas. Inexpensive wind power helps reduce operating costs. However, conflicting U.S. and Chinese interests put a damper on the idea, especially after lobbying in the Senate for laws to protect the planet from global warming.
While the price per unit of equipment fluctuates according to the price of Bitcoin, Wu’s company also earns income from mining pools. Bitmain controls three of the largest mining pools in the world: BTC.com, AntPool, and ViaBTC.
Wu co-invested with billionaire Peter Thiel in Hong Kong-based Block.One. The project, led by Brendan Blumer and Dan Larimer, raised $4 billion in the world’s largest initial coin offering. According to CoinMarketCap, its EOS token ranks 43rd in value at the time of this article’s publication.
Wu has also become a sort of an apostle of Bitcoin Cash (BCH) in the crypto community. As of September 2021, Bitmain has more than 4 million BCH and more than 30 thousand BTC, as well as an impressive portfolio of other assets such as Dash, Ethereum, and Litecoin, significantly increasing the net worth of Jihan’s investment portfolio.
If Bitmain realizes its initial plans for a public offering, it will become the biggest crypto company listed on a traditional stock exchange. Bitmain’s competitors have already published their prospectuses, including those for an IPO in Hong Kong. By comparison, Canaan had revenue of $190 million in 2020; Ebang reported a turnover of $135 million in the same period.
As things stand, Wu and Bitmain have rather dim prospects. On the one hand, the Chinese authorities are interested in raising capital. On the other hand, they have practically closed the domestic market for Bitmain. In addition, miners are under pressure from ecologists who stigmatize cryptocurrency mining for its significant carbon dioxide emissions. At the same time, the cryptocurrency market has an objective need for equipment, and miners have moved from China to other countries. Thus, the market situation does not allow for the making of long-term forecasts.