A leaked Bitmain pre-IPO report has revealed that not all is sunshine and roses at the world’s biggest Bitcoin mining company.

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The documents were translated by BitMEX, or Bitcoin Mercantile Exchange. This is a Bitcoin/dollar mercantile exchange based in the Seychelles which claims to process around $5 billion worth of trades daily. It also has a research arm, which was responsible for the analysis. Says the report: “We have reason to believe the authenticity of these documents, which forms the basis for this report.”

What is Bitmain?

Bitmain is a Hong Kong-based company that designs, constructs and sells cryptocurrency mining devices. It also owns and operates mining farms, and operates mining pools. Currently privately-owned, it is expected to apply for public listing on the Hong Kong Stock Exchange very soon with a valuation of approximately $14 billion.

According to the leaked document, Bitmain claims net assets of $2.6 billion.

ASIC sales

The research shows that between 2017 and the first quarter of 2018, Bitmain’s mining device sales fell from 2.5 million to 1.9 million, which equals a $500 million drop in revenue. This is despite Bitmain’s payments to its microchip supplier, Taiwan Semiconductor Manufacturing Co., reaching a peak of $866 million in 2017.

Of the aforementioned net assets, $1.2 billion is “inventory”, or in other words, cryptocurrency mining devices waiting for sale. According to BitMEX, this means that Bitmain has a glut.

In the wallet

The documents show that the value of the company’s cryptocurrency holdings dropped from $1.7 billion to $823 million between March 2018 and late August.

Partly responsible for this is the company’s shift in focus from Bitcoin to Bitcoin Cash, as Finance Magnates reported on earlier this month. The document shows that the company used 67 percent of its 2017 cash flow to purchase the latter, and now holds $558.7 million worth of the stuff, as compared to $153 million in Bitcoin proper.

At the beginning of August, it held approximately 5 percent of all the Bitcoin Cash in circulation. That figure is now 6 percent.

BitMEX calculates that the drop in value of Bitcoin Cash over that period has caused Bitmain to lose $299.2 million.

Whistle while you work

Bitmain owns the world’s two biggest mining pools (BTC.com and Antpool) and is part owner of the third (ViaBTC). Combined, they are responsible for approximately 48 percent of all mined bitcoins. This sector of its business remains steady.

Its own mining farms accounted for 18.4% of its revenue in 2016, but only 3.3% in Q1 2018. It should be noted that this drop is proportionate – in absolute terms, Bitmain’s mining revenue increased considerably in 2017, but its revenue from other areas increased far more.

However, cryptocurrency mining as an industry is losing profitability, as we discussed in a recent report. Bitcoin is nowhere near its 2017 value, and may never achieve that level again. Mining rewards are also only ever going to get smaller. When you take into account the fact that newer cryptocurrencies are taking active steps against mining becoming too centralised, mining may not be a profitable enterprise in the long term.