Bitmain Technologies, Ltd. is about to go public.
According to documents obtained by CoinDesk, the cryptocurrency mining company is filing for an initial public offering (IPO) potentially as high as $18 billion this September at a market capitalization of $40 to $50 billion. It will be underwritten by China International Capital Corporation and listed on the Hong Kong Stock Exchange in Q4 2018 or Q1 2019 amid a wave of Chinese unicorns hitting the public markets, including bitcoin mining competitors Canaan Creative and Ebang Communication.
One of the most valuable cryptocurrency companies, Bitmain closed a $1 billion pre-IPO financing round on July 23 at a $15 billion valuation, nearly two times cryptocurrency exchange Coinbase’s $8 billion valuation, reported in April.
Now, the possible $18 billion IPO sticker price positions Bitmain to displace social giant Facebook as one of the largest public offerings in history. SoftBank Group and Tencent Music are expected to top Alibaba and Spotify for the number one and two IPOs of all-time in the same fiscal period.
Tencent Holdings, Ltd., Softbank Group, China National Gold Group and an unnamed sovereign wealth fund managing $15 billion in assets participated in the pre-IPO round. A minimum commitment of $5 million was deadlined by July 18 and signed over to Bitmain Technologies Holding Company, the offshore Cayman Islands investment holding group that has been linked to Chinese technology billionaire Lei Jun, founder of consumer electronics company Xiaomi, Inc.
Before this latest funding, Sequoia Capital China led Bitmain’s $50 million Series A and $400 million Series B rounds with the help of San Francisco’s IDG Capital, Menlo Park’s Coatue Management, Russia’s DST Global and Singapore’s EDBI and GIC. The Series A round accounted for 5 percent of shares at a post-mortem valuation of $1 billion and the Series B round valued the company at $12 billion.
Projected share price and volume are not disclosed, but investment banks close to the IPO are calculating the P/E ratio to be 20 within the first publicly traded year. Financial numbers supporting this multiple indicate that Bitmain profited $3.2 billion in total across 2016, 2017 and Q1 2018, with revenues of $2.5 billion in 2017 and $2 billion in Q1 2018. Bitmain is forecasting $2 billion in profit by year’s end.
A diversified crypto strategy
Five years ago, Jihan Wu approached Micree Zhan with the purpose of engineering advanced application-specific integrated circuit (ASIC) chips to mine bitcoin more efficiently. That work established Bitmain, the leading market player in the cryptocurrency mining industry. Operations have since expanded to the alternative cryptocurrencies bitcoin cash, litecoin, dash, siacoin and ethereum.
With the IPO, the co-founders’ combined holdings could amount to roughly $30 billion, assuming they have retained 60 percent of the company together, per a January 2018 Bloomberg interview.
An investor prospectus for the IPO proves exactly how significant Bitmain’s mining business has been. Last year, Bitmain machines accounted for 66.6 percent of the total mining volume and Bitmain-run cryptocurrency mining pools covered 40 percent of the total mining network.
When the prospectus was drafted, BTC.com, the largest mining pool in the world, counted over 560,000 machines that mined approximately 11,200 out of 36,000 total bitcoin blocks. The second largest mining pool AntPool served more than 440,000 machines for bitcoin and alternative cryptocurrencies.
In addition to income generated by hardware costs and pool transaction fees, Bitmain has made $1 billion, $11 billion and $10 billion off of its 2016, 2017 and 2018 Q1 bitcoin holdings, respectively, revealed to the public for the first time here. Some of the funds have been set aside to back up to 30 blockchain companies for a blockchain research division, which shouldered blockchain data analytics service Blocktrail as early as 2016.
Outside investments are said to represent a broader effort to turn Bitmain into a cryptocurrency infrastructure conglomerate, and this has appeared to be increasingly true in recent months. Since May, Bitmain has invested in cryptocurrency point-of-sale system BizKey, incubated decentralized exchange DEx.top, financed cryptocurrency payments system Circle, added an ethereum extension to the Opera web browser and partnered with Huawei Mobile Services on a mobile cryptocurrency application.
Bitmain is also using these technologies to build a wallet, exchange and trading platform that will facilitate the bitcoin cash ecosystem, a spin-off of the original bitcoin cryptocurrency that the Chinese company sees as a likely breadwinner. The investor prospectus says Bitmain is “strategically developing” bitcoin cash by mining, investing and trading the coin and its peripheral technologies to realize substantial returns down the line. The day before yesterday, Bitmain disclosed an investment in tribeOS, a bitcoin cash advertising network.
Computing the chips
In 2013, the Bitmain graphics chip progenitor BM1380 utilized the 55-nanometer process, a mode of circuit dimensionality considered to be the most cutting-edge at the time. The company then shuffled through the 28-nanometer BM1382, BM1384 and BM1385 chips from 2014 to 2015, before advancing to the 16-nanometer BM1387 chip in 2016 to keep up with the competition.
Today, it is the older generation of chip makers that has been struggling to play catch-up. Bitmain has surpassed Spreadtrum Communications, a 17-year-old company, as the second largest integrated circuit design maker in China, according to the investor prospectus.
Huawei HiSilicon, the Chinese chip industry’s frontrunner, is slipping as well.
As of December 2017, Bitmain matched Huawei HiSilicon in 16 nanometer chip sales, while Taiwan Semiconductor Manufacturing Company, Ltd., the world’s largest semiconductor company to consumer goods vendors like Apple, Inc., supplied a greater quantity of 10 nanometer chips for Bitmain than the Kirin 970 chip equivalent for Huawei HiSilicon. The unreleased 10 nanometer chip joins a new class of 7 nanometer and 12 nanometer chips that Bitmain will roll out later this year.
In half a decade, Bitmain has captured 8 percent of the domestic chip design market where Huawei HiSilicon has taken 14 years to achieve 17 percent. Bitmain could near or overcome Huawei HiSilicon’s local stronghold very soon at this rate and, as the investor prospectus suggests, go head-to-head with the U.S. chip industry.
The Chinese market is already nudging out the American market within the worldwide chip economy, although Intel continues to lead the pack.
Silicon Valley has felt the pressure. It was reported back in February that Bitmain was as profitable as 24-year-old Nvidia, which had its stock price target lowered along with AMD’s in April.
Analysts pointed to a likely drop-off in Nvidia and AMD chip orders due to Bitmain’s upcoming ethereum mining rig. They feared cryptocurrency miners would be less inclined to purchase from Nvidia and AMD. Bitmain would have outperformed them at a lower cost and Ethereum had been the last major cryptocurrency to be untouched by its ASICs.
Aiming at AI
Still, U.S. chip makers have not been worried. AMD, 32 years Nvidia’s senior, has assured investors that personal computers, gaming and data centers will sustain the business, with or without cryptocurrencies.
But the logic applies both ways. When almost every electronic device imaginable is powered by a graphics chip, making ends meet outside of cryptocurrencies is possible for Bitmain as well, and the geopolitical incentive in China is stronger than ever.
Bitmain seems to be entirely aware of this fact. The investor prospectus outlines ambitions to enter into other technology fields, in part to “cope with the Chinese government’s ban on ICOs, cryptocurrencies and mining activities,” and in part to grow the company into a supercomputing titan with artificial intelligence.
An in-house artificial intelligence arm is predicted to generate 40 percent of revenue in the next 5 years for this reason. Bitmain is betting that neural network machine learning methods will heighten processing capacity in graphics chips for cryptocurrency and non-cryptocurrency applications alike, as with the BM1680 processor-based tensor computing card, deep learning accelerating card and intelligent server unit.
Bitmain claims testing has even shown that its AI chips have stacked up against the computing power found in Google’s corresponding AI products.
With a team of “nearly 500 people” working on “R&D, platform architecture, algorithm development, software and hardware development,” Bitmain has rapidly drawn on new and existing research from academic institutions and technology companies to pioneer artificially intelligent software and hardware, well beyond the scope of cryptocurrency mining tools.
Jihan Wu image via CoinDesk archives