INSUBCONTINENT EXCLUSIVE:
During a gold rush, Silicon Valley line is to always invest in picks and shovels instead of mining
Sometimes it pays just to do both.
TechCrunch has learned through a company fundraise overview that Beijing-based mining equipment seller
Bitmain hit a quarterly revenue of approximately $2 billion in Q1 of this year
Despite a slump in bitcoin prices since the beginning of the year, the company is on track to become the first blockchain-focused company to
achieve $10 billion in annual revenue, assuming that the cryptocurrency market doesn''t drop further.
Fortune previously reported that the
company had $1.1 billion in profits in the same quarter, a number in line with these revenue numbers, given a net margin of around 50
percent.
That growth is extraordinary
From the same source seen by TechCrunch, Bitmain revenues last year were $2.5 billion, and around $300 million just the year before that
The company reportedly raised a major venture round of $300-400 million from investors, including Sequoia China, at a valuation of $12
billion.
For comparison, popular cryptocurrency wallet Coinbase made $1 billion in revenue in 2017
In addition, Nvidia, a company based out of California that also makes computer chips, generated revenues of $9.7 billion in its 2018 fiscal
year (2017 calendar year)
Nvidia revenues were $3.21 billion in Q1 fiscal year 2019 (February-April 2018), and historical revenue figures show a general seasonal
uptrend in revenue from Q1 through Q4.
The same overview also shows that Bitmain is exploring an IPO with a valuation between $40-50 billion
That would represent a significant uptick from its most recent valuation, and is almost certainly dependent on the vitality of the broader
blockchain ecosystem.
Several of Bitmain competitors have filed for IPO since the beginning of 2018, but most of them are significantly
For example, Hong Kong-basedCanaan Creative filed for an IPO in May, and the latest was that it was aiming for $1 billion to $2 billion in
fundraising with 2017 revenue of US$204 million.
When contacted for this story, Bitmain declined to comment on the specific numbers
TechCrunch has acquired.
A brief overview ofBitmain
Bitmain is the world dominant producer of cryptocurrency mining chips known asASICs, or
Application-Specific Integrated Circuit
It was founded by Jihan Wu and Micree Zhang in 2013, and the company is currently headquartered in Beijing.
As the story goes, back in 2011,
when Wu read Satoshi Nakamoto whitepaper on Bitcoin, he emptied his bank account to buy them
Back then, one bitcoin could be purchased for less than a dollar
And by 2013, Wu and Zhang decided to build an ASIC chip specifically for bitcoin mining and founded Bitmain
Wu was just 28 at the time.
Cryptocurrency mining is the process of checking and adding new transactions to bitcoin immutable ledger, called
The blockchain is formed by digital blocks, where transactions are recorded
The act of mining is essentially using math to solve for a cryptographic hash, or a unique signature if you will, to identify new
blocks.
The general mining process requires massive processing power and incurs hefty energy costs
In exchange for those expenses, miners are rewarded with a number of bitcoins for each block they add onto the blockchain
Currently, in the case of Bitcoin, the reward for every block discovered is 12.5 bitcoins
At the current average trailing bitcoin price of approximately $6,500, that $81,250 up for grabs every 10 minutes, or $11.7 million dollars
a day.
Bitmain has several business segments
The first and primary one is selling mining machines outfitted with Bitmain chips that are usually a few hundred to a few thousand dollars
For example, the latest Antminer S9 model is listed as $3,319
Secondly, you can rent Bitmain mining machines to mine cryptocurrencies.
Third, you can participate to mine bitcoin as part of Bitmain
A mining pool is a joint group of cryptocurrency miners who combine their computational resources over a network
Bitmain two mining pools, Bitmain AntPool and BTC.com, collectively control more than 38 percent of the world Bitcoin mining power per
BTC.com at the moment.
The future of Bitmain is closely tied with the crypto market
Bitcoin mining is a massive business with influence
over energy prices across the world
(LARS HAGBERG/AFP/Getty Images)
Despite its rapid rise to success, Bitmain is ultimately dependent on the price of cryptocurrencies and
overall crypto market fluctuations
When there is a bull crypto market, investors would be willing to give a different valuation multiple to the company than if it were in a
In a bear market, the margins are reduced for both the company as well as for its customers, as the economics of mining cryptocurrencies are
For example, at the end of 2014, Mt
Gox, a famous Bitcoin exchange at the time, was hacked, spurring a crash in cryptocurrency prices.
Subsequently, Bitmain went through a
bitcoin drought as Bitcoin prices hit low points, and its ASIC chips did not see much demand
It was not appealing to miners to pay for expensive electricity bills to mine a digital currency that was falling in value
But fast-forward to now; we have gone through several bull and bear crypto market cycles
According to Frost Sullivan, in 2017, Bitmain is estimated to have ~67 percent of the market share in bitcoin mining hardware, and
generated 60 percent of computing power.
Canaan Creative IPO filing
Company A is Bitmain.
One of the fundamental challenges facing any cryptocurrency mining manufacturer such as Bitmain is that the valuation
of the company is largely based off the price of cryptocurrencies
The market in the first half of 2018 has shown that no one really knows when bitcoin prices and the cryptocurrency market will start picking
Additionally, according to Frost Sullivan, the ASIC-based blockchain hardware market, which is the market segment that includes Bitmain and
Canaan, will see its compound annual growth rate (CAGR) slow to around 57.7 percent annually between 2017 to 2020, down from 247.6 percent
between 2013 and 2017.
Nonetheless, it seems that Bitmain has planned well ahead to prepare for these macro risks and exposures
The company has raised significant private funding and has been expanding its business into mining new coins and creating new chips outside
of cryptocurrency applications.
First, with it existing mining rigs, Bitmain can essentially broaden into all SHA256-related coins
So coins such as Bitcoin, Bitcoin Cash and Litecoin can all be mined on Bitmain equipment
The limitation here is largely how fast they can build up more mining equipment and mining centers
The company has broadened its geographic reach by developing new mining centers
Most recently, Bitmain revealed that it will build a $500 million blockchain data center and mining facility in Texas as part of its
expansion into the United States market, aiming for operations to begin by early 2019.
Secondly, Bitmain is also looking to launch their
own AI chips by the end of 2018
Interestingly, the AI chips are called Sophons, originated from the key alien technology in the famous trilogy, the Three-Body Problem, by
If things go as planned, Bitmain Sophon units could be training neural networks in data centers around the world
Bitmain CEO Wu once said that in five years, 40 percent of revenues could come from AI chips.
Lastly, Bitmain has been equipping itself with
Lots of it, from a number of the top and largest investors in Asia
Two months ago, China Money Network reported that Bitmain raised a Series B round, led by Sequoia Capital China, DST, GIC and Coatue in a
$400 million raise, putting the company at a value of $12 billion
Just last week, Chinese tech conglomerate Tencent and Japan SoftBank, another tech giant whose 15 percent stake in Uber makes it the
drive-hailing app largest shareholder, also joined the investor base.
For Bitmain, there are many reasons to stay private as a company,
including keeping its quarterly financials private as well as dealing with market fluctuations and the ongoing volatility and uncertainty in
However, the con is that early employees may not get liquidity in their stock options until much later.
Wu has said that a Bitmain IPO would
be a &landmark& for both the company and the cryptocurrency space
However, with the current rich crypto private market financing, it not so bad of an idea to continue to raise private money and stay out of
Once Bitmain financials become more diversified and cryptocurrency becomes more widely adopted worldwide, the world may then be ready for
this $10 billion revenue blockchain company.
