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Analyst Questions Bitmain's Revenue as Crypto Miner Seeks IPO

Crypto mining giant Bitmain may be losing its advantage in developing miners amid other potential cash-flow issues, according to a new report.

Analysts with research firm Alliance Bernstein said the company’s “cash flow appears to be questionable and the company may be gradually losing technological edge” in a report published Wednesday. The researchers note that Bitmain’s revenue in 2017 fell below estimates after the company stored a large number of its miners’ components, rather than selling to customers, although its revenue still remained “remarkably high” for that year.

Further, even though Bitmain dominated the mining device market with “77 percent unit share in bitcoin and ~85 percent in all cryptocurrencies last year,” declining cryptocurrency prices reduced some of that revenue stream.

The bear market also impacted Bitmain’s holdings. The company holds roughly 5.7 percent of the total supply of bitcoin cash, which Bernstein says was “likely” acquired using its operating cash and bitcoin holdings.

“These BCH holdings, valued at U.S. $890 million as of [Q1 2018], poses another major risk as BCH is illiquid and has depreciated nearly 20 percent since [Q1 2018],” the report notes.

The company’s problems also extend to its own crypto mining projects. The report states that, last year, Bitmain’s advantage in mining rigs ensured it could fund projects with customer deposits, and saw roughly $1.3 billion in cash flow. However, as the price dropped early this year, customer deposits also slumped, and Bitmain was “forced to draw from its operating cash flow” in Q1 2018.

The report argues:

Going forward, the competitiveness of Bitmain’s chips is in question, as Bitmain failed in a 10nm chip [and] possibly other projects too. Rivals now may have caught up in technologies and Bitmain’s inventory (U.S. $1.2B as of [Q1 2018]) may face major a write-down risk.”

The publication comes after two of the firm’s reported pre-IPO round investors – though the claim did not come from Bitmain itself – told CoinDesk that they were not actually involved in the funding effort. Both Tencent Holdings and SoftBank group said they were not investing in the company, with SoftBank adding that it had not invested in the company previously, either.

Bitmain is seeking potentially as much as $18 billion in its IPO later this year. If successful, the company could see a market capitalization as high as $50 billion after the IPO concludes.

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Big Investors Deny Involvement In Crypto Miner Bitmain's Pre-IPO Funding

Tencent Holdings and SoftBank Group are both disputing their involvement in a widely reported pre-IPO investment round for Chinese cryptocurrency mining giant Bitmain.

Reports on the firms’ participation in the funding effort first emerged among Chinese media in early August. Soon after, several outlets including CoinDesk, TechCrunch and other media platforms cited the reports in follow-up articles on the mining giant’s anticipated multi-billion dollar initial public offering in Hong Kong.

Yet, both Tencent and Softbank have now confirmed to CoinDesk that they have no connection to the investment deal. 

A spokesperson for Tencent told CoinDesk via email on Thursday that the Hong Kong-listed company is “not involved in this investment” when presented with several online reports claiming they were. “The news is not true,” they added.

Similarly, financial giant SoftBank indicated it, too, had no connection to the Bitmain round.

“Neither the SoftBank Group Corp. nor the SoftBank Vision Fund were in any way involved in the deal,” a spokesperson of SoftBank wrote in an email response last week.

Asked about any previous or subsequent investment interest in the mining giant, the SoftBank representative further replied with “nothing so far.”

Meanwhile, another firm reported to have participated – China International Capital Corporation (CICC), an investment and securities brokerage firm listed in Hong Kong with headquarters in Beijing – did not deny the news after CoinDesk sent multiple enquiries on the issue, eventually telling us on Monday it has “no comment on the issue.”

Based on various Chinese reports that covered the deal, the original source of the claims appears to have come from an IPO-focused blog on the WeChat messaging platform, using an official account named “IPO Zao Zhi Dao.”

The owner, called “Uncle C”on WeChat, first published a report on July 23, saying its “exclusive sources” revealed several potential investors who were likely to participate in the Bitmain funding.

The post listed major names such as Tencent, GIC (a Singapore government-established sovereign wealth fund), the Abu Dhabi Investment Authority and a Canadian pension fund. Tencent said at the time it had “no comment on the report” after the article got widely cited across the Chinese media. 

Yet on August 4, the same blog published a follow-up post that again claimed the exclusive that Bitmain had officially closed its pre-IPO round with $1 billion, valuing the firm at $15 billion, post-deal. In addition, Tencent, Softbank and CICC were reported as participating.

The blogger refused to disclose sources when CoinDesk reached out for information.

Ada Hui contributed reporting.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.