The mining machine business is difficult to do Bitmain stopped paying wages

Bitmain, which has been silent for a long time, has caused heated discussions in the circle because of an announcement of delayed payroll, **Under the bear market, Bitmain, which was once in the limelight, will not be able to bear cash flow? **

According to Wu Say Blockchain report, a number of Bitmain internal employees confirmed that ** Bitmain issued a notice: the company’s operating cash flow in September has not turned positive, especially the progress of the mine (referring to the mining machine stationed in the mine) is seriously not up to standard, EMT decided to suspend the payment of part of the salary of all employees in September, and pay it according to the situation after the holiday on October 7. ** According to multiple employees, all employees’ performance wages in September were all deducted, and their basic wages were also deducted by half, and the deducted wages did not know when they would be paid. As of October 8, employees have not received unpaid wages, and the year-end bonus for 2022 has not been paid.

Bitmain once monopolized more than seventy percent of the global bitcoin mining machine market share, and was later greatly damaged by the “infighting” incident in which the two founders, Wu Jihan and Zhan Ketuan, competed for control. In the first quarter of this year, Bitmain implemented the reform of employee structure and compensation, adding “age points” to performance appraisals, and above the base age, the older the more points were deducted. **Bitmain employees said that in the latest salary adjustment plan, the original fixed salary was adjusted to the two parts of basic salary + performance pay, while performance pay was linked to rank, and the proportion of performance pay in the three grades of T3x, T4x and T5x was 30%, 50% and 70% respectively. **

The announcement of the delayed salary came suddenly, and at the end of last month, Bitmain held a high-profile press conference in Hong Kong, where its latest product S21 miner was released, and the voice at that time was mostly Bitmain’s “return of the king”, so it is difficult not to worry about the timing of this announcement.

The ill-fated road to market

Since the infighting, Bitmain has been like a deflated leather ball, and has lost its previous limelight. In addition to the current rumored capital chain problems, the difficult road to listing has also hindered the company’s further development.

The three giants in the industry, Bitmain, Canaan and Ebang International. Both have IPOs in Hong Kong but both failed, among which Canaan Yunzhi and Ebang International successfully landed on the NASDAQ after failing to list in Hong Kong, the former was listed in November 2019, the latter was listed on June 26, 2020, Bitmain, as a mining tyrant, has also been seeking to list in the United States, but internal power competition events have repeatedly delayed the listing plan.

Bitmain was the last of the Big Three to announce an IPO. Previously, Bitmain was expected to submit an IPO application to the Hong Kong Stock Exchange in July '18, planning to raise at least US$3 billion, and the listing application was supposed to be submitted at the end of August of that year. Before the news of the listing plan was exposed, Bitmain raised funds for the pre-IPO, and the relevant PPT began to circulate online.

The data in the financing PPT of that year showed that the mining machines produced by Bitmain accounted for 70% of the market share, and the mining pool computing power mastered by the company exceeded 50% of the computing power of the entire Bitcoin network, and the total profit in the past 9 quarters was $3.2 billion, of which the turnover in the first quarter of 2018 was $2 billion, which was dubbed the name of “mining master” by the market. Claims such as Bitmain’s valuation of $50 billion and $30 billion are all over the Internet.

Skepticism also began to spread, mainly from two aspects, the mining machine business and the fork plan. **

According to public data, mining machine revenue accounts for more than 90% of Bitmain’s total revenue, but it has fallen into technological stagnation since 2016. Once, Bitmain’s S1, S2, S9 have brought surprises to the market, among which the S9 launched in 2015, using 16nm process and power consumption of 110 W/Thash, has a 25% power consumption ratio advantage over competing products at that time, and is sold immediately after launch, but after S9, Bitmain has not launched amazing new products.

The Antminer V9 launched in June 18 has large power consumption and low computing power, and has been discontinued, and its upgraded version of the S9i miner still uses the 16nm process, while the competitor Canaan Yunzhi released the 7nm mining machine Avalon A9 series in June of the same period. According to Bitmain’s pre-IPO fundraising documents, the company’s inventory of mining machines, including V9 and S9, is as high as $1.2 billion. At that time, the new mining machine had not yet been launched, which shrouded a haze over its subsequent revenue capacity.

In addition, according to IDG Capital’s 18-year internal investment report, Bitmain has spent the company’s main profits on the purchase of BCH, totaling $2.5 billion. BCH originated from Bitmain’s Bitcoin hard fork plan, and Bitmain officially went to the opposite side of the market. The data shows that BCH has 3%-10% of Bitcoin users and no more than 20% of BTC in value.

Because of this hard fork, miners are still the main source of funds for BCH transfusion by Bitmain until the IPO fundraising is inconclusive. **If Bitmain’s IPO application continues to advance, the most powerful response to the market is a veritable technology upgrade. But at present, the newly released S21 miner is obviously not up to the standard of major upgrades. **

Crypto mining in the doldrums

Not only Bitmain, but other leading mining companies are also mired in declining revenue.

Previously, Ebang International announced its results for the first six months of fiscal 2023. **Data shows that in the first half of this year, Ebang International achieved revenue of US$4.09 million, down 83.69% from US$25.06 million in the same period of 2022; Gross profit was $0.99 million, compared to $14.24 million for the same period in 2022; Net loss was $8.38 million, compared to a net loss of $10.92 million for the same period in 2022. **

Canaan announced its fourth quarter and full year 2022 earnings data at the beginning of the year. **Data shows that the company’s total revenue for the whole year of 2022 was 4,378.9 million yuan, a year-on-year decrease of 12.2%; Gross profit was $1,747.9 million. In order to increase sales, Canaan Technology reduced the price of its products. But this has weakened its profitability, and in the cold winter of virtual currency, the effect of boosting sales is very limited. **

Since last year, mining profits have continued to shrink as the price of bitcoin has fallen and energy costs have risen, and the entire cryptocurrency mining industry has fallen into a difficult environment, resulting in a drop in the price of mining rigs by more than 80%.

The outbreak of the Russian-Ukrainian conflict, Russia has cut gas supplies to Europe, forcing countries to look for alternative energy sources, according to the European Energy Exchange data, the European Energy Exchange data showed that the electricity contract price delivered in Europe in the first quarter of 2022 was 184.62 euros per MWh. After the escalation of the Russia-Ukraine conflict, the contract price of electricity delivered in Europe in the third quarter of 2022 soared to 375.75 euros per MWh, an increase of nearly three times compared to the same period in 21 years (97.14 euros per MWh). The global cost of electricity has increased significantly, and mining enterprises, as large power consumers, are naturally overwhelmed.

The fall in the price of Bitcoin cannot be ignored. According to CoinMarkertCap, as of the close of trading on October 10, bitcoin was quoted at $27,600 each. This price is down 57.36% from the peak of $64,800 per coin in November 2021. On August 18 this year, the price of bitcoin also ushered in a flash crash, from $28,600 per coin the previous day, once fell to a low of $25,200, a drop of more than 11%.

The rising cost of electricity and the falling price of Bitcoin must affect the enthusiasm of miners to mine, thereby reducing the market demand for mining rigs. But at the same time, chips need to reserve production capacity 6 months or 1 year in advance, upstream manufacturers will still produce 150,000 to 200,000 mining machines per month, so the entire mining machine market is definitely oversupply, and irreversible in the short term, hoarded mining machine inventory is difficult to digest, price reduction inventory is naturally a last resort.

Overseas mining practitioners are also struggling, ** mining giants Core Scientific and Compute North have filed for bankruptcy protection, while Argo Blockchain sold its Helios mine in Texas to Galaxy Digital for $65 million, successfully avoiding the company on the road to bankruptcy. **

Under the cold winter, the performance of crypto mining companies has generally declined, and the chip companies upstream of mining enterprises have not survived. **Semiconductor giant Intel previously said that its Blockscale ASIC chip family, a product line dedicated to cryptocurrency mining, will cease production. The company expects to stop accepting orders for the series by October 20 this year and stop shipping by April 20 next year.

Galaxy’s mid-year report on Bitcoin mining shows that despite trend reversals in several key areas of the mining space, the astonishing increase in network hashrate in the first half of the year offset many favorable factors, resulting in record mining difficulties.

Crypto mining practitioners are undergoing an unprecedented test. **

Epilogue

Crypto companies as strong as Bitmain are also struggling in a bad market environment, making it difficult to survive alone.

Bitmain’s financial woes highlight the inherent risks of working in the cryptocurrency industry, where market volatility can have a profound impact on even the industry’s most established players. The crypto community is watching closely to see if Bitmain can weather the funding shortfall or face further setbacks.

Bitcoin is expected to usher in the fourth halving in April 2024, and the market is currently expecting a positive direction for this, and crypto mining companies are waiting for this round of market explosion. But before that, Bitmain has to think about how to solve the funding problem and safely transition to the day of the halving. **