New Information: Is Bitmain Really on the Brink of Bankruptcy?

Bitmain generated $1.1 billion in profit in the first three months of 2018. A shocking new report from Chinese media this weekend, however, claims that Bitmain is months away from bankruptcy.

That report comes from Chinese media outlet INEWS QQ, which published the piece on September 14. Over the weekend, the crypto community and the internet has been scrambling to determine how much of the report is true.

Bitmain is the largest mining hardware manufacturer in the world today. The company has dominated the crypto hardware space their launch in 2013. Today, the Beijing-headquartered company continues to dominate. In 2017, Bitmain allegedly generated $3 to $4 billion in profit. In Q1 2018 alone, Bitmain earned $1.1 billion in profit. The vast majority of bitcoin miners continue to use ASIC chips created by Bitmain.

This all seems like good news for Bitmain – which is why it was such a surprise that Chinese media is reporting the company’s impending bankruptcy.

There have been rumblings of problems with Bitmain. Reports from this summer called Bitmain’s rumored IPO “the biggest exit scam of all time”, claiming that Bitmain was “rushing” towards an IPO before investors realized the true state of the company. Then, there were reports of investors pulling out during the pre-IPO phase.

The INEWS QQ report highlights five specific reasons why Bitmain is struggling:

Massive inventory losses

A bad investment in Bitcoin Cash (BCH) and other altcoins

No new chips, and difficulty creating new chips as competitors continue to innovate

Bitmain’s AI project, Sophon.ai, is described as “insignificant”

Bitmain has been forced into an IPO out of desperation

The INEWS QQ report brings up many of the points Bitmain critics have mentioned over the past year. Those who have paid close attention to Bitmain have noticed several serious flaws in the hardware giant over the years. As competition in the hardware space increased, and as the company has made questionable decisions, these holes have been more apparent.

Bitmain’s Co-Founders Are Described as “Fire and Ice”

Bitmain has two co-founders and two co-CEOs, including Jihan Wu and Micree Zhan. Jihan Wu is a public figure, frequently responding to people on Twitter and using his social platform to advocate various changes.

BCH will continue its roadmap to build electronical cash on base protocol and encouraging permissionless innovation in layer-2. I see lots of buidlers are working so hard! Fake Satoshi can never stop us. — Jihan Wu (@JihanWu) September 17, 2018

Earlier today, for example, Jihan Wu weighed in on the Bitcoin Cash November hard fork controversy, calling Craig Wright “fake Satoshi”.

Micree Zhan, however, is a less public figure, and little is known about him.

The INEWS QQ report from this past weekend, however, explains more information about the relationship between Jihan Wu and Micree Zhan. The pair is described as “fire and ice”.

Jihan Wu is seen as the “ice” in the partnership because he reportedly doesn’t care much about the world. Here’s what the (Google Translated) INEWS QQ report claims:

“But some people who are familiar with him think that he is a person who doesn’t care about the world.”

INEWS QQ cites a preface Jihan Wu recently wrote in a book. They also mention his degree in psychology:

“He has a degree in psychology,” [says] Jiang Zhuoer, founder of the Lebitt Mine Pool, [who] is also a supporter of BCH. “At least I feel that his mastery of the people is higher than many people. As for the world.” Some people just don't think it's necessary to spend their energy on it.”

While Jihan Wu is ice, Micree Zhan is “fire” for separate reasons:

“[Micree Zhan] is irritable and has a paranoia similar to [Steve] Jobs. “If a part is generally completed in 10 days, [Micree Zhan] will only give the person who is under the team for 3 days, and will not be able to leave,” reports INEWS QQ, citing a person familiar with Micree Zhan and Bitmain.

“It is conceivable that there is a lot of pressure in the team of [Micree Zhan]. But this is the case, Micree Zhan can develop the most advanced chip at that time within half a year after Jihan Wu found him.”

The two – fire and ice – have formed a balance that has led Bitmain to enormous success. Obviously, however the firm has grown to encounter problems. We’ll talk more about the problems revealed in the INEWS QQ report below.

Multiple Problems with Bitmain Leading Up to the IPO: Is Bitmain Really Bankrupt?

It’s no secret that Bitmain was encountering growing pains. However, there’s a huge difference between growing pains and a bankruptcy. Is Bitmain really on the brink of bankruptcy? Here are some of the reasons why Bitmain could be going bankrupt, including the five reasons INEWS QQ highlighted in its report.

Bitmain Went All In with Bitcoin Cash (BCH) and Lost Nearly a Billion Dollars

How quickly can you lose $1 billion in profit? By investing in the wrong cryptocurrency. The INEWS QQ report cites data from BitMEX, which analyzed Bitmain’s financial situation. The report revealed some surprising information.

BitMEX Research reports that Bitmain had $1.2 billion in inventory in March 2018, more than half of its 2017 sales. Bitmain invested a large amount of its advance hardware payments into altcoins – including Bitcoin Cash and other coins.

As the prices of these altcoins have been fallen, Bitmain has watched its crypto hoard disappear.

The report claims that Bitmain used almost 69% of last year’s operating cash flow (OCF) to invest in Bitcoin Cash. The report also claims that Bitmain has more than 1 million BCH tokens in its hoard – something that has previously been rumored but never confirmed.

Bitmain is Falling Behind Competitors in the Race for More Efficient Mining Hardware

Perhaps more worrying than the BCH debacle is that Bitmain is reportedly falling behind competitors in terms of mining hardware efficiency. Bitmain’s two biggest mining competitors are reportedly developing 7 nanometer chip technology. The 7nm Avalon A9, for example, may be launched as early as late September.

This would be the most advanced chip technology on the market. Bitmain has not yet been able to mass produce a 7nm chip, which suggests they’re falling behind the competition.

Today, Bitmain continues to have a 70% market share. As competitors innovate and surpass Bitmain, however, the company might watch its market share disappear.

A Key Bitmain Employee Left Bitmain in 2016 to Found His Own Company

The INEWS QQ report mentions a simple reason for Bitmain’s failure to innovate: one of their best employees jumped ship to found another company. In 2016, Dr. Yang Zuoxing left Bitmain to establish Whatsminer. Yang Zuoxing was seen as one of the key figures behind Bitmain’s S9 chips – the ones still used by miners today.

Since Dr. Yang Zuoxing has left, Bitmain has not made a major breakthrough in chip technology. Furthermore, several attempts to make a breakthrough have completely failed.

While competitors announce 7nm chips, Bitmain has nothing to offer.

Unknown AI Strategy with Bitmain’s Sophon

The INEWS QQ report describes Bitmain’s AI strategy as “unknown”. Bitmain’s Sophon AI aims to use deep learning to enhance bitcoin mining efficiency. However, there’s limited information about the AI systems available online, and it’s unclear how successful Sophon’s development has been.

Patent Problems

Bitmain has sued its Chinese mining hardware competitors, claiming that they’re using chip designs first created by Bitmain.

The INEWS QQ report mentions these lawsuits, but claims they’ve failed because the technology is almost universal in the industry.

Bitmain’s Troubles Are “Clearly Worthy of Investors’ Concerns

The INEWS QQ report sums up that Bitmain’s troubles are “clearly worthy of investors’ concerns.” Investors are encouraged to look deeper into the company. They should check to see if there’s any promising news about the development of Bitmain’s Sophon AI technology, for example.

The report also brings up another interesting point: as the crypto industry struggles in the midst of a bear market, the world’s three largest mining hardware manufacturers have all decided to focus on seeking a public listing and launching an IPO. Why is that?

Jihan Wu is “An Economic Master” Who Will Steer the Ship Correctly

The report might seem like it’s totally negative about the future of Bitmain. However, there are some nuggets of positivity buried inside.

At one point in the report, for example, Jihan Wu is described as “an economic master” who correctly saw the value in bitcoin years ago. He also predicted that bitcoin would have a peak price at the end of 2017, which is why Bitmain divulged many of their BTC assets before the end of the year. Jihan Wu is reportedly very optimistic about the future price of BCH. And, the report suggests that even if the price falls, Bitmain has more than enough operating capital.

Ultimately, it’s hard to know who to believe. Bitmain has been a giant in the hardware space since 2013. Is the company just going through the normal growing pains of any startup? Or is this an indication of an impending bankruptcy? If the price of Bitcoin Cash recovers, will that solve all of Bitmain’s problems?

These are all questions Bitmain will have to answer for investors if the Chinese crypto mining hardware giant hopes to go public.

Was Craig Wright correct when he tweeted back in late August: