Remember, remember, the month of September. It’s a minor adaptation from Guy Fawkes’ original poem, though the verse will undoubtedly be etched into the mind of the investing world if Bitmain’s IPO goes according to plan at an estimated $18 billion.

Not bad for a company built around mining crypto. That valuation would place Bitmain among the biggest and baddest IPOs of all time, and would be the first of many shakeups to the top rankings as a wave of Chinese tech companies go public in the coming months.

Where Bitmain would nestle in:

#6, Visa (2008, $19.7B)

#7, General Motors (2010, $18.15B)

#8, NTT DoCoMo (1998, $18.05B)

#9, Bitmain (2018, ~$18B)

#10, Enel (1999, $16.59B)

#11, Facebook (2012, $16.01B)

As the dot-com honorees have shown us, high valuations don’t always work out for investors (both remain below their IPO price). So is Bitmain’s valuation vaporware or the real deal?

Weak books, cautious looks

There’s a healthy amount of skepticism floating around that have many questioning whether Bitmain’s IPO is being done for the right reasons. While it’s true that Bitmain has an aspirational expansion plan that involves a $500 investment in a U.S. data center, the company’s pre-IPO financials contain several red flags.

Prices of mining rigs have fallen ~85% since Q1.

Investment docs show Bitmain had roughly $1.24 billion of inventory at the time, which Samson Mow explains could put current losses in the $600 to $700 million range. In his words, Bitmain’s inventory is “melting ice cream”.

What’s concerning: This is August – drumming up a report based on figures that are almost half a year stale doesn’t give investors the full picture.

Bitmain is VERY exposed to Bitcoin Cash

As of March 31st, Bitmain held over 1.02 million Bitcoin Cash at a book value of ~$890 million. With roughly 17.3 million Bitcoin Cash in current circulation, that puts Bitmain’s direct ownership at nearly 6% of the total supply.

Why this is problematic: Bitmain can’t liquidate their Bitcoin Cash without crashing the price. Because order books are too thin, large sell orders could lead to a slippage as high as 50%, according to community analysts.

Again… this is August. Looking at the breakdown of Bitmain’s portfolio, most of their holdings are well below the prices listed at the end of March.

Bitcoin Cash: 73.3% (~1.02 million @ $869 each)

(~1.02 million @ $869 each) Bitcoin: 12.2% (22,082 @ $6,712 each)

(22,082 @ $6,712 each) Litecoin: 4.2% (930,932 @ $55 each)

(930,932 @ $55 each) Dash: 8.5% (312,424 @ $330 each)

(312,424 @ $330 each) Ethereum: <0.0% (1,097 @ $690 each)

(1,097 @ $690 each) Other: 1.6% (~$19.5 million)

Don’t forget the perks of an IPO

Investopedia reminds us that “The IPO is seen as an exit strategy for the company founders and early investors to profit from their early risk taking in a new venture.”

With Bitmain batting 0-for-2 on big bets during 2018, the company needs a cash injection to both move forward with their expansion and cover impending losses. An IPO provides a formal way for Jihan Wu to offload any going-concern risk and exit as a multi-billionaire.