Crypto

Mulling IPO Amid Crypto Declines, Bitmain Reportedly Raises Late-Stage Round

In the wee hours of Monday morning, Crunchbase captured a $400 million late-stage funding round reportedly raised by Bitmain at a $12 billion, post-money. Sequoia Capital China led and GIC and DST Global participated in the deal, according to Crunchbase data and initial media reports. This follows a $50 million round raised by Bitmain in September 2017, which was co-led by Sequoia Capital and IDG Capital.

The $400 million “pre-IPO” deal was first reported in the English-speaking press by Deal Street Asia, which cited reports by local media, which in turn cited unnamed “insiders” at Bitmain. CCN picked up the story this morning. At time of publication, Crunchbase News hasn’t received confirmation from Sequoia Capital or its Chinese subsidiary concerning the round.

The Deal Street Asia report says Bitmain is planning to file for an IPO in Hong Kong in September, and “expects to go public with market capitalization between $30 billion and $40 billion by the end of this year.”

Bitmain graduating to public markets would be a significant milestone for the cryptocurrency industry, which has, so far, been backed mostly by venture capital and initial coin offerings (ICOs) of dubious legality. Obviously, it would be a landmark event for Bitmain too, which has signaled interest in expanding beyond cryptocurrency to another computationally-intensive field: machine learning and artificial intelligence.

This emerges following a challenging week for crypto markets. Bitcoin, the most valuable cryptocurrency by market capitalization, declined twelve percent over the last seven days, as the chart below shows. And the cumulative market capitalization of crypto assets dipped below $300 billion for the first time since mid-April.

Bitmain’s Public Market Dreams

Bloomberg cited a report released in February by Bernstein Research, which suggests that Bitmain controls roughly 75 percent of the market for application-specific integrated circuits (ASICs) designed to mine bitcoin. The bitcoin ASIC market’s second largest player, Canaan Creative, controls roughly 15 percent, and all other producers account for the remaining 10 percent. In addition to bitcoin ASICs (hashing SHA256), Bitmain also manufactures custom hardware for litecoin (Scrypt hashing), dash (X11), ethereum (Ethash), monero (CryptoNight), and other hashing algorithms used by different blockchains.

In May, Canaan Creative filed in Hong Kong to potentially raise $1 billion in an IPO, sponsored jointly by Morgan Stanley, Deutsche Bank AG, Credit Suisse Group AG, and CMB International Capital, according to another Bloomberg report from the time. The report said Canaan, which generated $205 million in 2017 revenue (and nearly $57 million in net income), intends to begin trading in July.

However, Bitmain’s revenues are an order of magnitude larger. Wu says Bitmain generated $2.5 billion in revenue in 2017. Using chip manufacturers Nvidia and MediaTek as public market comparables, Bloomberg estimated Bitmain would be valued at approximately $8.8 billion on public markets.

But that doesn’t jibe well with Wu’s statements, saying that the company was valued at $12 billion. Nor does that public-market comparison agree with new venture funding reports that bubbled up from China overnight.

A Big Fish In The Mining Pools, And Why It Matters

In addition to being the dominant player in manufacturing cryptocurrency mining equipment, Bitmain also runs two of the largest mining pools, BTC.com and AntPool. Collectively, these two pools account for close to 40 percent of the total bitcoin network hashrate, at time of writing.

AntPool was Bitmain’s original mining pool, and BTC.com (once a web-based bitcoin wallet) was turned into a mining pool following Bitmain’s buyout of bitcoin data startup Blocktrail, which was announced in July 2016. In addition to these mining pools, which independent owner-operators of bitcoin mining hardware can connect to, Bitmain also operates Hashnest, a hosted mining service that lets people rent compute cycles on hardware owned by Bitmain.

This is all to say that Bitmain is in a uniquely powerful position in the cryptocurrency ecosystem. As both the largest manufacturer of metaphorical pickaxes, and operator of the biggest mines for the most valuable asset in the space, it stands to profit on both sides of the mining market. And as new bitcoins become ever more difficult to mine, and scarcer in the wake of block reward halving events, demand for newer, more expensive generations of faster mining hardware will sustain itself so long as it’s still profitable to play this guessing game.