An IPO application for Bitmain Technologies, the world leader in bitcoin mining rigs, on the Hong Kong Stock Exchange (HKSE) has lapsed, essentially shelving the company’s plans to go public.

The company had hopes of becoming the world’s first crypto firm to be traded on a major stock exchange.  It was hoped that the IPO would raise up to $3bn of new capital on a valuation of more than $15bn.

The Beijing-based company had filed a draft application in Hong Kong in September last year. However, if the Listing Committee fails to respond, HKSE rules state that the draft filing lapses after six months.

Bitmain has acknowledged the expiration of the listing in a statement released today. While Bitmain is free to resubmit its IPO proposal at any time, the company admitted that it will “restart the listing application work at an appropriate time in the future”. No time frame for any future IPO plans was given in the statement.

Bitmain IPO: Bitcoin price hits miner’s pockets

Bitmain is a victim of Bitcoin’s demise. The popular cryptocurrency has lost more than 75% of its value since it peaked above $19,000 in December 2017. The Bitcoin price currently hovers between $3,000 and $4,000.

Bitmain’s main source of revenue is bitcoin mining rigs, specially-designed systems for mining cryptocurrencies. In order to mine Bitcoin, a computer system must solve complex math problems. This confirms transactions on the network and rewards the user with newly-created bitcoin.

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Currently, the odds of a particular computer solving one of these equations is approximately one in six trillion, and the energy use required to solve an equation will often cost more than the reward’s value.

The company saw its revenue grow ninefold between 2015 and 2018 as people rushed to capitalise on bitcoin’s price rise. By the end of June last year, the company had generated $2.84bn in revenue in a six month period.

However, as mining bitcoin became unprofitable during 2018, so too did Bitmain. The company saw profits of $700m during the first half of 2018, but reports suggest that the company went on to lose $500m in the third quarter.

Industry struggles

Bitmain isn’t the only company to have suffered as a result of the struggling cryptocurrency market. It becomes the third Chinese bitcoin mining company to have its HKSE IPO application to have expired in recent months.

The world’s second-largest mining hardware manufacturer, Canaan, had its application to expire in November. Likewise, bitcoin equipment manufacturer Ebang’s filing also expired last year. However, the company has since submitted a new proposal.

Australian mining firm Bitcoin Group has also faced a tough time gaining entry to the Australian Stock Exchange. The company first submitted a proposal in 2015, and did eventually IPO in 2016. However, having fallen short of its AU$20m target, capital concerns forced the company to withdraw from the stock market.

NVIDIA, a leader in the graphics processing unit market, has also been hit by the sliding bitcoin value. Crypto miners accounted for more than $750m in revenue for GPU manufacturers in 2017 according to Jon Peddie Research. However, as mining became less profitable, demand for high-end GPUs also fell, which Nvidia CEO Jensen Huang described as a “crypto hangover”. After the company reported its Q3 2018 earnings, which fell $0.7bn short of a forecasted $3.4bn in revenue, the chipmaker’s stock plunged by more than 15%.

While Nvidia has other business segments to fall back on, for those specialised in crypto-mining equipment, overcoming this is crypto hangover is proving more difficult.

The CEO of the HKSE, Li Xiaojia, has previously said that companies hoping to list on the stock exchange must be able to show that they have a “sustainable” business model. The instability of the bitcoin price over the past 12 months has made this almost impossible for crypto businesses.

In its statement, Bitmain acknowledges that the youth of cryptocurrency and blockchain technology makes it difficult for exchanges to authorise listings of companies in these still emerging industries. However, the business feels that more needs to be done to include and encourage businesses in this space.

“We do recognise that despite the huge potential of the cryptocurrency and blockchain industry, it remains a relatively young industry which is proving its value. We hope regulatory authorities, media, and the general public can be more inclusive to this young industry,” the statement reads.

Business as usual

While the bitcoin price doesn’t seem likely to resurge any time soon, Bitmain has insisted that it is business as usual despite the end of its planned IPO.

The company has undergone radical change since the end of 2018. It has shuffled its personnel, having brought in a new CEO, and began focusing its attention further afield than mining rigs. While crypto-mining chips are still a core product for the company, it is now working on artificial intelligence (AI) chips too, which it hopes will provide the level of sustainability that the HKSE is looking for.

“It was a difficult but necessary decision as we continue the build a long-term, sustainable and scalable business,” the statement said.

“Since then, we have established clear business divisions for mining hardware, AI, mining farms and mining pools. At the same time, we have integrated the resource lines for chip design, hardware and software to provide more effective support for our key business lines and to allocate premium resources to our major and key projects.

“With these operational changes now in place, the priority for this year is to double-down on innovation for and serving our customers.”

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