Bitcoin’s Biggest Name Forgot a Rule for Selling Shovels
Story by: Tim Culpan
We all know the sage advice that in a gold rush the best thing to do is sell shovels.
My caveat would be to ensure you’re paid in cash. And just to be clear for the modern world, this does not mean getting paid in Bitcoin Cash.
Yes, I am looking at you, Bitmain Technologies Ltd.
The Chinese company is reported to be the world’s largest maker of cryptocurrency mining rigs. It also makes specialized crypto-mining chips, and controls close to half of the world’s Bitcoin mining power. In gold rush terms, it designs and makes the shovels, sells those shovels, and runs half the mines that use the shovels.
Bitmain is steaming toward an IPO amid a plunge in the price of cryptocurrencies. Various leaks of its financials have made it into the wild, shining a spotlight on its business model.
The first appears to come from Samson Mow, chief strategy officer of Blockstream Corp., who tweeted a screenshot in mid-August. If anyone else has an earlier claim, then let me know. BitMEX Research, part of bitcoin trading platform BitMEX, is among other outfits that seem to have got their hands on Bitmain documents.
What pops out at everyone who reads that initial slide is that while Bitmain is making and selling a lot of crypto shovels, it’s getting paid in digital gold, i.e. Bitcoin and its offshoot Bitcoin Cash. Or if it’s not getting paid in crypto, then it has been using cash to buy said digital gold.
Crypto Crash
Bitcoin and Bitcoin Cash have seen better days, though Bitcoin has stabilized since July
Source: Bloomberg
Numerous people pointed out the strategic error of selling Bitcoin and buying Bitcoin Cash, whose price has plummeted even more. They’re correct, but miss the point. It’s like saying they were stupid swapping gold for silver in the middle of a precious metals rout. Look at BitMEX’s analysis of the situation and the error is even more stark.
Barely $105 million of Bitmain’s assets at the end of March were in cash, or fiat, compared with $1.17 billion held in various types of cryptocurrency.
Fool’s Gold
Bitmain held less than 3 percent of its assets in cash at the end of March, less than one-tenth the value of its crypto coin holdings
Source: BitMEX Research
What’s more worrying to me amid the prolonged crypto downturn are the two largest non-coin assets on its balance sheet: inventory, and prepayments to its chip manufacturer, Taiwan Semiconductor Manufacturing Co. Those two items accounted for 54 percent of total assets.
Original story: https://tinyurl.com/yaxrvtax
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