Chinese Firms Embroiled in Legal Battle Over Sale of Bitcoin Mining Hardware

Cailiang, a subsidiary of gaming marketplace Wholeasy, filed a public statement that they are working with the police in a case against Bitcoin mining hardware manufacturer Ebang for delivering 65,000 miners but demanding payment for 100,000. Responding to this news, Ebang revealed they already filed a case with financial regulators, providing proof in the form of sales invoices to back their claims, reported by Coindesk, December 23, 2019.

A Case of “He Said, She Said”

One party has provided proof of sales documents, while the other claims the documents are for the original order and do not reflect actual deliveries made thus far. Of course, sales invoices are hard evidence, but now it’s in the hands of the court to decide who is in the right and who is in the wrong.

Cailiang was acquired by Wholeasy under the terms of achieving a net profit of $7 million, $8 million, and $10 million for fiscal years 2017, 2018, and 2019 respectively. Cailiang slightly underperformed that metric in 2017, but then they structured their business, adding Bitcoin mining services to their service offerings. Rapidly, the company went from being a small cloud-based mining operator to opening a full-fledged farm, incorporated as Mobcolor, in California.

According to invoices, the deal was $80 million for 100,000 miners, establishing an effective price of $800 per miner. To Cailiang’s dismay, these miners are much more vulnerable to obsolescence, making liquidation of these miners difficult after they have served their purpose. Bitmain‘s Antiminer S9 goes for $100-150 in the secondary market, and the Ebang E9 would be much less.

Mining Industry Blues

Cailiang didn’t just enter a volatile industry, they entered it near the peak of the Bitcoin cycle in early 2018. Larger miners who have been in the market before 2017 have the added benefit of sitting on huge piles of cheap mined bitcoin.

But with price continuously declining, the entire industry seems to be somehow coping and banking on the future cycle playing out to make bank. At the moment, mining is still profitable, albeit profit margins have fallen quite drastically in the second half of 2019.

Miners are highly reliant on Bitcoin prices, and if the halving event occurs but externalities prevent BTC price from doing its usual exploding, it wouldn’t be surprising to see some of the larger pool capitulate and, at the least, temporarily exit the market.