Bernstein warns on Bitmain mining chips as rivals catch up

August 22, 2018
Chris Wheal

Bitmain Technologies, the designer of cryptocurrency mining chips, is coming under increasing competition from its rivals ahead of its initial public offering (IPO) according to analysts at Sanford C Bernstein.

Bitmain’s Antminer crypto-mining rig

Analyst Mark Li suggested the Beijing-based company may even need to write down the value of its inventory as rivals such as Canaan and Ebank International Holdings – both due to launch IPOs in Hong Kong – are quickly catching up.

Li added that Taiwan Semiconductor Manufacturing Co (TSMC), the producer of chips designed by Bitmain, should consider asking the company to make repayments and defer further capacity for crypto mining-related demand.

Competitiveness in question

Having enjoyed a year of “wild success” in 2017, when it controlled around 85% of the market for mining chips, Li said that now “the competitiveness of Bitmain’s chips is in question”.

Demand for all crypto mining equipment had dropped off this year as the prices of bitcoin and its rival digital currencies have dropped sharply.

Indeed, AMD has seen prices of its graphics processing units – used in crypto-mining rigs – drop sharply, as has rival Nvidia.

Last month, TSMC cut its full-year revenue guidance on estimates of weakening demand from cryptocurrency miners.

Bitmain IPO

Bitmain, which also operates cryptocurrency mining farms, is planning an IPO in September in which it hopes to raise as much as $18bn to give it a market capitalisation of between $40-$50bn.

Bernstein’s Li pointed to a growing risk with the IPO, however, after reports Bitmain had built up significant holdings of bitcoin cash, posing a “major risk” as its value declines.

Blockstream chief executive Samson Mow said in a tweet earlier this month that Bitmain had sold most its bitcoin for bitcoin cash. “They’ve bled half a billion in the last three months,” he said.

“The Bitmain IPO is incredibly risky for any investor to buy into. The potential for massive losses are just around the corner,” he added.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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