BitMEX Research, the research unit for crypto exchange BitMEX, on Thursday published a detailed analysis for recent data revealed by Chinese Bitcoin mining giant Bitmain Technologies, which just opened its books for the first time ahead of its Hong Kong IPO.

BitMEX’s think tank believes that Bitmain creates an exit for early investors as the company suffers both diminishing growth and margins due to a continued bear market of cryptocurrencies.

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Questions over the sustainability of Bitmain’s future have been surfaced on BitMEX’s first ‘unboxing’ report following its IPO leaked disclosures.

According to a prospectus for the offering filed on Wednesday, Bitmain received massive pre-orders for their latest Antminer at the peak of the bull market in late 2017. But after it spent a few months to manufacture and ship its chips, the gear has slowed as lower crypto prices, and lack of miner innovation compared to its rivals, have kept orders extremely soft in 2018.

The document reveals that although the company brought in more than $700 in profit during the first half of 2018, “Bitmain has been making large losses recently, with a net loss of US$395m in Q2 2018… with almost US$0.5 billion spent on failed chips in the last 18 months.”

Challenges Ahead Are a Bear Market, Intense Competition

Given the Bitmain’s issues, the company closed a $442 million pre-IPO funding round from investors last month to strengthen its balance sheet. But while the report examines the reasons behind this surprise investment, BitMEX is seeing the possibility of future cash flows decreasing. The liquidity event, therefore, would be a great exit ahead of a margin squeeze and while the market remains relatively active.

Specifically, the recent tumble in cryptocurrency prices hurt both the profitability of mining operations and demand for the custom chips. In addition, competition in the mining-gear business has grown more intense, in particular after electronics giant Samsung announced it would be entering the ASIC chip market for crypto mining.

The researchers concluded that despite Bitmain’s dominant market position and outstanding performance in the first half, its planned IPO is not without dissenters and there’s also no guarantee that investors will flock to it.

“We now know the IPO is close and could occur within a few months. This could provide Bitmain a substantial cash war chest. Although Bitmain’s rivals have very recently successfully began releasing a wave of new more efficient mining products, Bitmain’s new large cash reserves, is something they should worry about. Even though Bitmain obtained this money from investors, rather than generating it from free cash flow,” BitMEX report states.

Bitmain, which is based in Beijing and has offices in other cities including Amsterdam, Tel Aviv, and Hong Kong, announced in January that it intends to invest in as many as thirty startups powered by blockchain. Touted as the world’s largest cryptocurrency mining hardware manufacturer, it has led several investments in 2018 including a $5o million into the upcoming IPO of internet browser Opera.