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Is Bitmain’s $18 Billion IPO An Attempt to Make Up for Some Botched Trades of 2017?

August 14, 2018 00:46
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Bitmain’s gignatic $18 billion IPO is on everyone’s mind nowadays. The IPO, which will be among the largest in the world, has attracted attention even outside the crypto community. However, a pre-IPO investor deck of the company that came out recently seems to be suggesting that all is not as good as it was looking till now. Buried deep inside that pre-IPO document is an alarming bit of information: the information related to crypto holdings of company! And when we look at it, we learn that Bitmain has put too many of its eggs in just one basket. Moreover, even that basket seems to have some major holes into it!

The leaked filing document reveals that currently Bitmain is holding Bitcoin Cash for majority of its crypto assets. It seems as if Bitmain made one of the worst trades of 2017 by converting majority of its mined BTC holdings into BCH for inflating the valuations of BCH. According to software engineer Vijay Boyapati, Bitmain’s interest with Bitcoin Cash is aligned ever since its creation. Bitmain CEO Jihan Wu wanted the Bitcoin block size to be altered with a 2X fork in August last year. It was in the interest of his comapny. However, the 2x fork experiment failed. It was this failure which made him go ahead with creation of a miner-controlled version of Bitcoin that later came to be known as Bitcoin Cash.

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Elaborating further the plan that company might’ve had in its mind Vijay said:

“The creation of BCash was based on the fear that if Bitcoin were to scale using second layer technologies (such as Lightning Network), Bitmain’s profits through mining fees might dwindle.

Jihan’s solution was to attempt to replace Bitcoin with Bcash. A tiny but vocal group have tried to convince unsuspecting investors that BCash “is” Bitcoin. Market forces would have quickly shown this false narrative to be ludicrous except for one thing: Bitmain propped up the price of BCH giving some small credence to the narrative.”

If Vijay is true and this was indeed the plan of Bitmain, then we can say that the plan was also working. It was working until 3 months ago at least. However, in May started one of the worst and longest bear phases of crypto market, which wiped out billions of dollars from almost all major cryptocurrencies. Suddenly Bitmain was in for a rude shock!

Since then the price of Bitcoin Cash has dropped from $1,663 to $563 – a drop of 68 percent! And if Bitcoin Core developer Cory Field wouldn’t have disclosed a vulnerability in Bitcoin Cash last week, and someone would’ve exploited that vulnerability, Bitcoin Cash (and therefore Bitmain) would’ve easily lost a few billion dollars!

Now the situation is that Bitmain is sitting on a pile of huge losses because of this botched trade made last year. But even more worse than that is the fact that Bitmain can’t even exit its position in Bitcoin Cash!

That’s right. There’s a bear phase going on in the market, and if Bitmain starts selling its BCH holdings it will further erode the price of Bitcoin Cash. So the company will end up making even more losses. Heck, it may not even be able to sell all of its holdings as Bitcoin Cash is far less liquid than Bitcoin, and an erosion in value can further threaten its liquidity situation due to decreased buyer interest.

If Bitmain has to come out of this situation unscathed, there’s only one solution: a sustained bull market for several months! That can’t happen without funds, and according to Vijay that’s the reason why Bitmain is doing an IPO right now – because those funds can help it propel the price of Bitcoin Cash somehow!

Explaining the whole thing in his 13 long tweets Vijay further supported his point with the claim that when he once commented about BCH hitting a price of less than 0.1 BTC and the effect that can have on its credibility, Jihan Wu was quick to retaliate. Perhaps because that tweet hit some sore spot!

Vijay is also not the only one feeling uneasy after finding out these details. Samson Mow, the CEO of Pixelmatic and CSO of Blockstream also said in his tweets that Bitmain IPO is gonna be a very dangerous one for average investors as company has no idea what to do with their large holdings of BCH.

Vijay further cites the problem associated with public companies as another nail in the coffin. According to him once Bitmain is a public company, it will be questioned by the investors again and again about those BCH holdings. Investors won’t want it to continue propping up the price of Bitcoin Cash with their money, and the company would be forced to face the realities of market.

And those realities, Vijay says, are not looking very positive as of now. The company has been battling with a failed product launch and increased competition from new players entering the market, some of whom also have deep pockets backed by chip manufacturers!

In a nutshell, Bitmain may be doing an IPO… but things are not looking good for it. Its botched BCH trade of last year, crypto bear market and increased competition all are the odds stacked against its success.

The other side

However, at the same time there’s also one more side of the coin. It’s possible that Bitmain might not have acquired these large BCH holdings by converting its BTC holdings. The pre-IPO deck of company doesn’t say anything about how company got that large stack of BCH – it reveals only the numbers!

But numbers themselves also speak a lot. Looking at those numbers it can’t be denied that Bitmain is holding a large chunk of its mined assets in BCH.

Now when this pandora’s box has been opened, it will be interesting to see how successful Bitmain’s IPO remains. We’re also awaiting a response from the company on the topic, and will let you know when something is said by them in this regard.

Technology and business were my core interests, so it wasn't surprising that I got interested in cryptocurrencies, which operate at the intersection of both these things. Now I live my passion by trading cryptocurrencies and covering Cryptocurrency news. You can connect with me on Facebook to learn more about me. :)

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