Over the past few days, Bitmain announced that CEO Jihan Wu was stepping down from his position, to be replaced by product engineering director Wang Haichao. The news followed months of negativity surrounding Bitmain, which is both the world’s largest manufacturer of cryptocurrency mining rigs and the operator of one of the largest Bitcoin and Bitcoin Cash mining pools. Wu’s Bitmain co-founder Zhan Ketuan will also be abdicating his role at the top of the company’s hierarchy.
Bitmain’s fortunes have fallen sharply since the first half of 2018. In February, CNBC reported that Bitmain had generated between $3 and $4 billion in profit during 2017, putting the Beijing-based firm ahead of American semiconductor firm Nvidia, which recorded a $3 billion operating profit for 2017. The same article attributes Bitmain’s incredibly successful 2017 to a shrewd policy of increasing the price of their mining rigs in line with Bitcoin’s incredible bull run. As Bitcoin surged toward $20,000 in the latter half of 2017, Bitmain increased the price of its Antminer mining rig to $5,000. However, the downturn in Bitcoin’s fortunes since then seems to have hit Bitmain hard.
CNBC’s article quotes Bernstein analysts as suggesting Bitmain control as much as 80% of the market for Bitcoin mining rigs and ASICs, with sales of mining equipment accounting for 95% of the company’s operating profit. Bitmain was still riding high in September 2018, when rumors circulated of an upcoming Hong Kong-based Initial Public Offering (IPO). TechNode reported that the IPO was set to value Bitmain at between $40 and $50 billion. The IPO would have raised $16 billion, surpassing the $14 billion Facebook achieved from a roughly $100 billion valuation in 2012.
But on December 17, CoinDesk quoted an anonymous source from within the Hong Kong Stock Exchange who expressed serious reservations about allowing Bitmain’s IPO to take place. An application by Canaan Creative, another giant of Bitcoin mining, had already been allowed to lapse, and the source suggested Bitmain and other mining firms were likely to suffer the same fate: “The exchange is very hesitant to actually approve these bitcoin mining companies because the industry is so volatile. There’s a real risk that they could just not exist anymore in a year or two.”
On the same day as the CoinDesk article, a post appeared on the Chinese version of LinkedIn enquiring about rumors of mass layoffs at Bitmain. On December 25, CoinDesk quoted an anonymous source from within Bitmain as suggesting that as much as 50% of the company’s staff may be laid off. This follows incredible expansion over the previous 12 months, with Bitmain’s employees ballooning from just over 1000 at the start of 2018 to more than 3000 by December.
Unconfirmed rumors from several sources suggest that the downturn in Bitcoin has had major financial consequences for Bitmain. The Twitter account @btcking555 claims to be operated by someone within an investment firm connected to Bitmain’s attempted IPO and has been posting strongly negative information on the process for months. Over the past month, the account has tweeted that Bitmain lost $1.2 billion during 2018, despite liquidating 400,000 Bitcoin Cash.
We got leak of Bitmain Q3 numbers! COMPLETE DISASTER. The company lost $740 Million including losses on inventory and bitcoin cash! And this is not accounting for hash war costs! #bitmainipo @HKEXGroup
— BTCKING555 (@btcking555) December 4, 2018
— BTCKING555 (@btcking555) December 14, 2018
In less than a year BCH collapsed from the highs of $4300 to $78 as oolf now. That’s -98% !
With BCH collapse, so did the fortunes of Bitmain. I guess with Bitmain’s crypto holdings essentially wiped out, easier for @HKEXGroup to comment/evaluate the prospectus 😱#BitmainIPO
— BTCKING555 (@btcking555) December 14, 2018
Breaking: Bitmain has all but run out of the funds raised during summer! It has net liquidated 400K BCH and is now down to 750K BCH. All the BCH coming in from sales are being sold! Jihan will announce another wave of significant layoffs soon!!
— BTCKING555 (@btcking555) December 17, 2018
Breaking: Jihan is removing himself from CEO role as he sees high probability of bankruptcy. Removing from CEO will decrease personal liability! In addition early estimates, Bitmain 2018 Profits were NEGATIVE $1,2 Bilion !!!
— BTCKING555 (@btcking555) January 10, 2019
While claims made via an unverified Twitter account should always be taken with caution, @btcking555 has been ahead of the curve in reporting later-confirmed negative reports surrounding Bitmain. The account attributes Bitmain’s remarkable reversal in fortunes as much to its support of Bitcoin Cash as to the overall downturn in crypto markets.
Casualty of Bitcoin Cash Hash War?
Bitmain’s problems were already mounting prior to the contentious hard fork of Bitcoin Cash and hash war that followed in November 2018. Wu and Bitmain threw their support behind Roger Ver’s Bitcoin Cash ABC (BABC) faction, diverting hash rate from Bitcoin mining to Bitcoin Cash in order to stave off an attempted network takeover by Craig S. Wright’s breakaway Bitcoin Cash Satoshi’s Vision (BCSV). As we reported at the time, this decision seemingly precipitated an immediate drop in Bitcoin’s price, sending it plummeting from the mid-$6000s to below $4,000.
The latest negative headlines seem to have had a similar effect, with Bitcoin dropping from just above $4,000 on January 10 to $3,660 on January 11. Other major cryptocurrencies followed Bitcoin off the cliff-edge, with Bitcoin Cash dropping from $160 to $136.
Ever since Bitcoin Cash was created in a contentious hard fork from Bitcoin back in 2017, some online communities have been strongly opposed to BCH and any major figures supporting it. Wu and Bitmain have been among BCH’s most significant and high-profile backers. As Motherboard explained in April, Bitmain took the drastic step of “burning” 12 percent of BCH the firm collected in mining fees by sending them to empty wallet addresses, in an attempt to bolster the cryptocurrency’s falling price.
These communities have reacted with glee and schadenfreude to the recent news and rumors. The /r/Bitcoin subreddit has been particularly jubilant, with heavily-upvoted memes attracting scores of comments outlining the many issues users have with Wu and Bitmain.
Bitmain’s AntPool consistently accounts for around 10% of both Bitcoin and Bitcoin Cash’s mining hash rate. In a worst-case scenario, if Bitmain were to collapse completely, it could do further damage to both cryptocurrency’s price, and potentially even leave Bitcoin Cash open to the type of 51% attack recently reportedly experienced by Ethereum Classic.
However, such a scenario is unlikely to play out any time soon. And Bitmain may well recover from the recent string of setbacks. In reporting the firm’s mass layoffs in December, CoinDesk also quoted a source from within the company as stated the layoffs were being balanced with hires for other divisions. This source characterized the layoffs as part of “restructuring,” rather than a warning sign of imminent collapse.
Bitmain’s woes also add greater urgency to supporters of Ethereum’s long-term plan to implement a switch from a Proof-of-Work (PoW) mining consensus model to Proof-of-Stake (PoS). We wrote on the subject of the ongoing PoW vs PoS debate late last year, and Ethereum’s current move to the Constantinople upgrade is intended to move the cryptocurrency closer to this long-term goals.
Whatever happens next, Bitmain is a very significant entity within cryptocurrency, and Jihan Wu has long been one of its most prominent and outspoken figures. Many will be waiting eagerly to see what’s next for Bitmain and Wu.