Bitmain predicted to be knocked from relevance; US tariffs of 27.5% now apply

Bitmain’s planned initial public offering (IPO) was already facing significant resistance due to the myriad of issues and controversies plaguing the company. However, the future now looks even less bright, thanks to President Donald Trump.

The ongoing trade war between the U.S. and China will undoubtedly impact cryptocurrency mining equipment. This past June, the U.S. changed the classification of the mining rigs from “data processing machines” to “electrical machinery.” Electrical machinery is subject to an import tariff of 2.6%—not unreasonable for any product. However, because of the trade war, the tariff schedule has been updated significantly. Instead of 2.6%, mining equipment manufacturers are now looking at the possibility of paying 27.6%.

Competition in the mining equipment manufacturing space is getting more serious. More than half of Bitmain’s business relies on overseas sales. With the increased tariffs, the company will have a difficult, if not impossible, time offering products at prices that can beat those of its competitors.

Some of Bitmain’s primary competitors, such as Squire, use chips manufactured in South Korea. These are not subject to the tariff schedule, nor are those produced in Taiwan. This will not only give companies that source products from these countries an edge, but it will also give rise to new competitors who will threaten Bitmain’s ability to act in the mining space.

The company even recognized in its IPO filing that there existed the possibility it could be impacted by external forces. It said that its revenue could see declines based on tax rates “due to economic and political conditions.” As Bitmain is already losing ground to competitors who are now producing mining rigs that are faster and more efficient, the tariffs could be the proverbial nail in the coffin that brings an end to the highly questionable IPO.

CoinGeek was already prepared for this eventuality, which is why the introduction of Antiguan-based bComm Association‘s Bitcoin SV (developed by nChain) is vital to the mining community. The full-node implementation software is now available and is quickly gaining favor. Don’t just take my word for it—come check it out during Miner’s Day at the upcoming CoinGeek Week Conference in London next month.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Bitmain resorts to threats over fragile IPO

Our sources tell us that Bitmain executives have promised to “disappear” anyone who crosses them inside China.

While doing the background research for another Bitmain article, our sources told us of the disturbing threats, and we were able to confirm these with our other sources close to Bitmain.

I don’t believe this was a Google translate error, where they meant to say that they’d beat their competitors fair and square in the free marketplace but instead like the old gangsters in Las Vegas, they’d drop them in a hole in the middle of the Nevada desert.

Bitmain released a prospectus, in advance of their long-planned IPO, to lukewarm reviews as the document raised more doubts about the company’s long-term viability.

According to a Medium post by Ken Lu, several points should concern every investor particularly in referring to slide 30 of their investor deck, Bitmain misrepresented its net profit.

To quote Lu, “…misrepresenting this and to such a degree is nothing short of financial fraud.” (You can read the post here.)

The prospectus highlighted the company’s unsold hardware and their warehouses of unsold technology which at a time was the best on the market but has recently been surpassed by new players who are producing faster and more efficient miners leaving the prospects of millions of dollars in inventory going unsold and written down for massive losses.

In recent weeks, Pangolin released its well-received Whatsminer M10 ASIC Miner , while initial test results for the upcoming Squire Miners indicate 1.5x more hashing capabilities while consuming 50% less energy than the top of the line Bitmain ASIC miners.

Interestingly, the Pangolin miner comes from the mind of former Bitmain technologist Yang Zouxing. Bitmain has struggled to replicate the success they had with Yang Zouxing who did the heavy lifting with chip design.

Their inability to combat the corporate brain drain as their top tech minds continue to leave the company have put Bitmain in a dire situation.

Attempting to defraud investors and now issuing veil threats of violence against people who dare compete with them in a free market isn’t the behaviour of a stable and trustworthy company deserving of investors cash.  It’s the behaviour of gangsters who are desperate for money hoping a hail mary IPO will give them some semblance of hope at surviving in this new competitive marketplace.

This all adds smoke to the Bitmain Bankruptcy rumours.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Scrutinizing Bitmain’s IPO produces more questions than answers

Only a week ago, it was reported that cryptocurrency mining company Bitmain was preparing to move forward with its long anticipated initial public offering (IPO). The announcement may have had a positive impact on the Bitcoin BCH price, but that excitement was short-lived and now the IPO is beginning to be scrutinized in greater detail. The results are even more disconcerting than previous analysis of the company revealed.

The release of Bitmain’s IPO application (in pdf) has led to more questions about the company’s solvency. Around 28% of the company’s assets are in cryptocurrency, leading some to believe that Bitmain is essentially about to introduce a crypto fund through the IPO. However, this is more than likely not the case, as Bitmain’s physical inventory, for example, provides the company with a certain amount of diversification.

However, that physical inventory has decreased significantly in value. This is due to a market that rapidly shrunk in size, leaving Bitmain with product that it couldn’t distribute. Therein lies one of the problems – having inventory and no market is a dead end.

The lengthy IPO document, in one instance, leads readers to believe the company is a manufacturing firm (despite 50% of its products ultimately failing) and, in another, that it is offering a mining stock. It is also a company that offers services to other sectors, further exasperating attempts to define its operations.

A post on Medium by Ken Lu makes four startling revelations about the company. Lu dissected the IPO in great detail and also reviewed the company’s pre-IPO Investor deck. What he discovered should give pause to anyone considering making an investment in the company.

Lu points out that Bitmain misrepresented its net profit for last year. Referencing slide #30 of the Investor deck and page 307 of the prospectus, he points out that there is a huge $550-million mismatch between Bitmain’s stated net income and its audited income. Lu asserts, “This massive US$550 [million] Net Income ‘miss’ translates into implied PE multiples being significantly inflated. Many investors relied on this essential figure for doing the analysis, and misrepresenting this and to such a degree is nothing short of financial fraud.”

Bitmain also allegedly misrepresented its net profit target for the current year. Lu points out, “[I]nvestor deck (slide #30) states Net Profit Target for 2018 at US$1.8 [billion] which we now know is a complete sham. But did [Bitmain CEO Jihan Wu] and Directors know of this while fund-raising for Pref B and B+ rounds during summer? This is the key question Hong Kong courts will be asking. And the answer is undoubtedly yes!”

Lu also points out that Bitmain was creative with its financial reports this year. He indicates that the company had tied together the results from the first two quarters without showing the individual quarter results. The first quarter was highly successful, but the second quarter was a virtual failure. This shows a tendency of the company to try and fool investors with smoke and mirrors.

The last misrepresentation comes through Bitmain’s accounting of its inventory. He calls out Bitmain for not breaking down “its actual inventory of cryptocurrency and recording it at cost vs true market value. It’s very odd that for something that constitutes 28% of Assets is a complete ‘black box’ to investors.” Lu adds, “Bitmain holding close to a US$1billion in a ‘black box’ that can at any time plummet to zero, is surely not something the Hong Kong regulator will take lightly.”

Lu concludes, “Investors in the recent pre-IPO round were misled as to the accuracy of the data, and considering complexity and opacity of Bitmain’s business (compared for example to its competitors Canaan and EBang), Hong Kong Regulators will be taking a very close look at the business model, requiring more clarity and explanation. All of that will require more time, and that will coincide with Bitmain having to disclose even more disastrous Q3 results, which will even further damage investors’ appetite for the IPO.”

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Questions surround Bitmain’s business plan ahead of IPO

Bitmain, one of the largest cryptocurrency mining equipment manufacturers and mining operations in the world, is looking to go public this month, but a series of missteps may just about put those plans in jeopardy. Apart from making egregious financial backing claims that have since been refuted, new questions have come up regarding the company’s financial solvency and, most recently, its business practices.

Internal Bitmain documents that were leaked to the public has shown that the company may have indulged in some creative accounting. In the documents, which were posted on Twitter and is in Chinese, Bitmain asserted that it holds assets worth around $2.6 billion. Of these, $1.2 billion-worth is reportedly held in inventory, which means that almost half of its assets are devices that it has not been able to ship. In other words, the company has a large quantity of machines that it hasn’t been able to push out to the market because demand has fallen.

That conclusion was reached by the Bitcoin Mercantile Exchange (BitMEX), which translated and analyzed the leaked documents. It asserted, “We have reason to believe the authenticity of these documents, which forms the basis for this report.”

BitMEX also concluded that Bitmain’s sales dropped from 2.5 million to 1.9 million between last year and the first quarter of this year. This represents a revenue decline of around $500 million, despite the fact that the company’s largest microchip supplier, Taiwan Semiconductor Manufacturing, reached a new revenue high of $866 million last year.

Bitmain is the owner of the two largest crypto mining pools in the world, Antpool and BTC.com, and is part owner of another, ViaBTC. The three pools mine about 48% of all mined Bitcoins; however, the revenue generated from them for Bitmain dropped to 3.3% in the first quarter of the year, down from 18.4% in 2016. These figures are proportionate, as the company’s mining revenue increased last year as mining activity increased. However, crypto mining is now losing profitability.

Bitmain has hinted at an initial public offering (IPO) for several months and had anticipated a $30-billion valuation before going public. After a recent funding round, it said that it was halfway there, thanks, in part, to Japan’s Softbank and China-based Tencent. Both companies have now publicly denied any involvement in funding the company. It is now time to seriously consider how viable the company is and take a deep look into its operations before the IPO is allowed to move forward.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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