Crypto mining giant Bitmain reveals heady growth as it files for IPO(techcrunch.com)
techcrunch.com
Crypto mining giant Bitmain reveals heady growth as it files for IPO
https://techcrunch.com/2018/09/26/bitmain-hong-kong-ipo/
31 comments
As a matter of fact, semi-annual reporting is standard in Hong Kong Stock Exchange. It requires only semi-annual reporting, for long-term investing.
[1] https://www.arx.cfa/up/post/569/Asia-s-Financial-Reporting-F...
[1] https://www.arx.cfa/up/post/569/Asia-s-Financial-Reporting-F...
Giant greenhouse gas producing giant heads towards IPO might also work
downturn???? they made their last year in six months but ok you re probably right
Classic gold rush pattern: the people who outfit the miners do better overall than the vast majority of people who do the mining.
(Generalizing here, but seems similar to California in 1849, Yukon in 1898, and several others)
(Generalizing here, but seems similar to California in 1849, Yukon in 1898, and several others)
I visited Seattle a few weeks ago, and had the pleasure of learning about their involvement with the Yukon gold rush. Seattle branded itself as "the gateway to the Yukon" where thousands of miners would outfit themselves, and depart - by either boat or trekking through Canada (usually some combination of the two). It was pretty fascinating to see all these historical archives. Some companies that were born out of this frenzy (Nordstrom for one) are still around!
Anyway - I couldn't help but the whole time imagine being in the year 2078. And viewing a museum (of course a VR digital-museum) about the Crypto rush of the 2010s. Likewise digging up old messaging board posts about striking gold in Ethereum. Outfitters claiming their boards could mine faster than the competition! The wild-west mentality, and the crime that occurred around it. You press a button on a wall and hear an audio recreation of someone leaving their job to strike it rich.
Anyway - I couldn't help but the whole time imagine being in the year 2078. And viewing a museum (of course a VR digital-museum) about the Crypto rush of the 2010s. Likewise digging up old messaging board posts about striking gold in Ethereum. Outfitters claiming their boards could mine faster than the competition! The wild-west mentality, and the crime that occurred around it. You press a button on a wall and hear an audio recreation of someone leaving their job to strike it rich.
Same with San Francisco and the California gold rush. The city grew from 1000 to 25,000 between 1848 and 1849, and companies born out of this include Levi Strauss, Ghirardelli chocolates, and Wells Fargo.
I was initially skeptical of cryptocurrencies because I looked at the motivation of their biggest evangelists and was like "They're just bitter because other people are rich and they are not". I changed my opinion after realizing that "other people are rich and I'm not" is perhaps the biggest motivation in history. Aside from creating Seattle and San Francisco, it's also responsible for the settling of the Americas, the original gold rush.
I was initially skeptical of cryptocurrencies because I looked at the motivation of their biggest evangelists and was like "They're just bitter because other people are rich and they are not". I changed my opinion after realizing that "other people are rich and I'm not" is perhaps the biggest motivation in history. Aside from creating Seattle and San Francisco, it's also responsible for the settling of the Americas, the original gold rush.
Interestingly, Bitmain sold most of its Bitcoin and accumulated tons of Bitcoin Cash, leading to hundreds of millions of dollars in losses, so they also seem to have burned themselves on the gold rush as well.
Bitmain have their tentacles in other cryptocurrencies too, e.g. Ethereum: "As recently as April 2018, mining equipment provider Bitmain Technologies announced an Ethereum version of its POW application-specific integrated circuit (ASIC) hardware, a decision that is particularly notable in the context of Casper's planned switch to POS... With this much capital, Bitmain could theoretically continue supporting development of the POW version of Ethereum by itself, even without the consent of Ethereum leader Vitalik Buterin." [0] You could call them the "great vampire squid" of the crypto world.
[0] http://strategiccoin.com/chronicles-4/
[0] http://strategiccoin.com/chronicles-4/
Did they then sell the Bitcoin Cash after its price declined? I wouldn't say they lost anything until they sell their asset at a loss.
Not even if it drops down to 0? I'd say it counts as a loss as it goes down, even if you haven't sold it yet. You can't say that you have 3 billion in assets because "in the future it's hopefully rise in value!"
https://www.reviso.com/accountingsoftware/accounting-words/l...
> Losses can result from a number of activities such as; sale of an asset for less than its carrying amount, the write-down of assets, or a loss from lawsuits.
Seems like some action needs to be taken for it to be considered a loss.
> Losses can result from a number of activities such as; sale of an asset for less than its carrying amount, the write-down of assets, or a loss from lawsuits.
Seems like some action needs to be taken for it to be considered a loss.
There’s a split between the technical definition of a loss, which requires a sale or transfer, and the layman’s definition of a loss, which does not.
Technically if you hold an asset that’s traded down to 0, you haven’t realized the loss yet. But the average civilian would say that you’ve “lost everything”.
Technically if you hold an asset that’s traded down to 0, you haven’t realized the loss yet. But the average civilian would say that you’ve “lost everything”.
The loss may be unrealized, but it would still be reflected in the market value of the company's assets, just not in the book value. The book value will still reflect the purchase price, but a massive deviation between book and market value is going to raise due diligence flags.
In fact for marketable securities (which Bitcoin could be compared to, for some values of 'marketable' and 'securities'), GAAP requires unrealized gains/losses to be applied to the book value to bring it into line with the market value [1].
[1] https://www.accountingtools.com/articles/what-is-the-differe...
In fact for marketable securities (which Bitcoin could be compared to, for some values of 'marketable' and 'securities'), GAAP requires unrealized gains/losses to be applied to the book value to bring it into line with the market value [1].
[1] https://www.accountingtools.com/articles/what-is-the-differe...
Companies are valued based on cash flows + assets. That value can change even when they don't sell assets.
EX: If a hotel chain was destroyed by a hurricane it's stock price would drop for both cash flows and the value of properties, not when they tried to liquidate the properties.
EX: If a hotel chain was destroyed by a hurricane it's stock price would drop for both cash flows and the value of properties, not when they tried to liquidate the properties.
Not a good comparison.
First, there's a difference between an assets trading value dropping, and it being physically destroyed. With the former you can continue to hold and hope that price recovers, with the latter there is no hope that the hotel will reconstruct itself without serious cash expenditure.
Second, a hotel chain is both property and the ability to generate cash flow. If that is destroyed, the company's ability to generate more revenue is eliminated. Financial assets used for speculation typically do not generate a large amount of cash flow while sitting idle. Instead there's the expectation that they can be sold later for a profit (ideally).
Finally, there is an important disconnect between a company's assets and its stock price, since the stock price represents an expectation of future profits. If traders think that BCash will rise in the near future, they might vote up Bitmain stock before the underlying assets move in the slightest.
First, there's a difference between an assets trading value dropping, and it being physically destroyed. With the former you can continue to hold and hope that price recovers, with the latter there is no hope that the hotel will reconstruct itself without serious cash expenditure.
Second, a hotel chain is both property and the ability to generate cash flow. If that is destroyed, the company's ability to generate more revenue is eliminated. Financial assets used for speculation typically do not generate a large amount of cash flow while sitting idle. Instead there's the expectation that they can be sold later for a profit (ideally).
Finally, there is an important disconnect between a company's assets and its stock price, since the stock price represents an expectation of future profits. If traders think that BCash will rise in the near future, they might vote up Bitmain stock before the underlying assets move in the slightest.
I said cash flow was part of the equation.
But, assuming a company had an insurance payout for their property: Then they go from cash flow A + property's worth X, to cash flow 0 + property's worth Y + insurance money in a bank account. Under your method because Y is undefined you assume it's X and then add the insurance money to the total valuation. That's really not what happens.
I don't disagree that cash flows could increase the value of the company. However, the value of assets really are part of the equation and get updated when the value of those assets change.
But, assuming a company had an insurance payout for their property: Then they go from cash flow A + property's worth X, to cash flow 0 + property's worth Y + insurance money in a bank account. Under your method because Y is undefined you assume it's X and then add the insurance money to the total valuation. That's really not what happens.
I don't disagree that cash flows could increase the value of the company. However, the value of assets really are part of the equation and get updated when the value of those assets change.
If you're a US company reporting your finances in USD and happen to be holding a hundred million Euro cash, would you report large fluctuations in the exchange rate in your filings?
yes? or maybe you just report the cash in euro? I think you were being sarcastic, but I'm genuinely interested.
Yes. All financials are filed in a single currency. You would report the exchange losses under a separate line specific for gains/losses due to FX.
Yeah, I'm saying that if Bitcoin is a "currency", it can't have "unrealized losses" like another asset does.
If you bought Bitcoin at 100 and hodled, would you say you made a lot of money?
If the answer is yes, wouldn't you do the same thing if you bought at 20k - and say you lost a lot of money?
If the answer is yes, wouldn't you do the same thing if you bought at 20k - and say you lost a lot of money?
Selling shovels is the way to go
This reads to me like Bitmain wants to cash out while it can. Not a great indicator for the blockchain space.
Maybe it's that more cryptocurrencies are moving to ASIC resistant hashes to curb Bitmain and the like also
IPOs of smart money companies (aka dumping your stock on dumb money public markets) generally signal the top of the market.
The crypto market is down 75% to 95% or more depending on the asset. This is a last ditch effort to stay solvent after betting the farm on the bull market continuing around Jan 2018.
Matt Levine column today (https://www.bloomberg.com/view/articles/2018-09-27/sharehold...)
Bitmain.
Maybe the most interesting thing about the initial public offering of Bitmain Technologies is its accounting. (Here is the preliminary offering document, here are articles about it from Bloomberg News and the Wall Street Journal, and here is an analysis from my Bloomberg Opinion colleague Tim Culpan.) Bitmain is a company that mostly sells cryptocurrency mining hardware; it also does some crypto mining itself. It seems to be quite profitable: In the first half of 2018, it had net income of $743 million, and profit from operations of $1.07 billion, on about $2.8 billion of revenue. (It seems to have had a loss in the second quarter though.) Its business seems fairly straightforward: Most of its revenue comes from selling mining hardware, most of its costs come from building the mining hardware, and the revenue greatly exceeds the costs.
But while Bitmain has over a billion dollars of operating profit, its cash flow from operations is very negative: It used $622 million of net cash in operating activities in the first half. That is unusual! But the explanation is simple:
"Our cash outflows from operations are principally payments for purchases of products and raw materials, selling and marketing expenses, administrative expenses, research and development expenses and other operating expenses. During the Track Record Period, we have accepted payment in the form of cryptocurrencies for sales of our cryptocurrencies mining hardware, and we also received cryptocurrencies from our proprietary mining and operation of mining pools, however, we do not recognize receipt of cryptocurrencies as operating cash inflows."
Oversimplifying slightly, Bitmain pays for parts and labor in fiat currency, uses those parts and labor to make stuff, and then sells the stuff for cryptocurrencies. The making-stuff part of this business is lucrative—it sells the stuff for much more than it costs to make it—but the currency mismatch is sort of muddling. Cash goes out to fund operations, but it does not come in as a result of operations.
Cash does come in, though: Sometimes Bitmain sells the cryptocurrencies. It sold $516.5 million worth in the first half of 2018. It just treats that as a cash flow from investing activities, not from operations. The normal operating cycle of paying cash to make stuff, making the stuff, selling the stuff for cash, and then using the cash to make more stuff, is completed here; there is just an extra step—and an extra timing decision, and an accounting move from operations to investing—in the middle, as Bitmain sells the stuff for crypto and then, later, optionally, converts the crypto into cash.
One could imagine a world in which Bitmain paid its workers and suppliers in crypto and the entire cycle stayed out of the fiat system, but—obviously—that is not the actual world. And one could imagine a world in which selling stuff and getting paid in crypto counted directly as operating cash flow, but that is also not the actual world (of accounting).
Anyway, between the time that Bitmain sells its stuff for crypto, and the time it converts that crypto into cash, something else a little weird happens to it:
"We account for cryptocurrencies at cost, instead of revaluing cryptocurrencies at their fair value on each accounting reference date, to avoid substantial volatility in the value of cryptocurrencies from time to time, which may distort our results of operation and financial condition. Gains or losses from the disposal of cryptocurrencies are determined as the difference between the net disposal proceeds and the carrying amount of the cryptocurrencies and are recognized in profit or loss on the date of disposal."
Is that right? I mean, it’s probably right as a matter of technical accounting; I am not an expert in the international financial reporting standards for cryptocurrency but I assume that Bitmain’s auditors are. But is it the right way to think about this business? It seems like the right way to think about a computer-hardware company; it isolates Bitmain’s ability to build hardware and selling it for more than it costs to build. And that is, operationally, a pretty good description of what Bitmain does.
On the other hand you could also think about Bitmain as an investment fund that invests in crypto assets, and whose value as a company rises and falls with the price of its crypto assets. This would not be fair to its operating business, and you can see why it says that it would “distort our results of operations.” But I am not sure it would distort Bitmain’s “financial condition.” It seems to me that shareholders might care about the value of Bitmain’s assets, and if that value swings wildly then possibly the financial statements should too.
I realize that this is an annoying and trivializing position; it reduces any real operating business that takes payment in crypto (and holds onto it) to a crypto hedge fund with an operating business attached. But that’s what using a wildly volatile currency will do for you!
One other accounting item I enjoyed is on page 197 of the offering document, under “Other Net Loss,” where there is a line item for “loss of cryptocurrencies incurred as a result of cyber-security incidents.” There are entries there for 2015 and 2017. They’re not huge—the 2017 one was “a loss of cryptocurrencies worth approximately US$27 million, which we suspect was caused by a hacker attack”—but I like the idea of “getting your Bitcoins stolen by hackers” as a recurring expense, and I expect to see a lot more of it as more crypto-related companies go public.
Bitmain.
Maybe the most interesting thing about the initial public offering of Bitmain Technologies is its accounting. (Here is the preliminary offering document, here are articles about it from Bloomberg News and the Wall Street Journal, and here is an analysis from my Bloomberg Opinion colleague Tim Culpan.) Bitmain is a company that mostly sells cryptocurrency mining hardware; it also does some crypto mining itself. It seems to be quite profitable: In the first half of 2018, it had net income of $743 million, and profit from operations of $1.07 billion, on about $2.8 billion of revenue. (It seems to have had a loss in the second quarter though.) Its business seems fairly straightforward: Most of its revenue comes from selling mining hardware, most of its costs come from building the mining hardware, and the revenue greatly exceeds the costs.
But while Bitmain has over a billion dollars of operating profit, its cash flow from operations is very negative: It used $622 million of net cash in operating activities in the first half. That is unusual! But the explanation is simple:
"Our cash outflows from operations are principally payments for purchases of products and raw materials, selling and marketing expenses, administrative expenses, research and development expenses and other operating expenses. During the Track Record Period, we have accepted payment in the form of cryptocurrencies for sales of our cryptocurrencies mining hardware, and we also received cryptocurrencies from our proprietary mining and operation of mining pools, however, we do not recognize receipt of cryptocurrencies as operating cash inflows."
Oversimplifying slightly, Bitmain pays for parts and labor in fiat currency, uses those parts and labor to make stuff, and then sells the stuff for cryptocurrencies. The making-stuff part of this business is lucrative—it sells the stuff for much more than it costs to make it—but the currency mismatch is sort of muddling. Cash goes out to fund operations, but it does not come in as a result of operations.
Cash does come in, though: Sometimes Bitmain sells the cryptocurrencies. It sold $516.5 million worth in the first half of 2018. It just treats that as a cash flow from investing activities, not from operations. The normal operating cycle of paying cash to make stuff, making the stuff, selling the stuff for cash, and then using the cash to make more stuff, is completed here; there is just an extra step—and an extra timing decision, and an accounting move from operations to investing—in the middle, as Bitmain sells the stuff for crypto and then, later, optionally, converts the crypto into cash.
One could imagine a world in which Bitmain paid its workers and suppliers in crypto and the entire cycle stayed out of the fiat system, but—obviously—that is not the actual world. And one could imagine a world in which selling stuff and getting paid in crypto counted directly as operating cash flow, but that is also not the actual world (of accounting).
Anyway, between the time that Bitmain sells its stuff for crypto, and the time it converts that crypto into cash, something else a little weird happens to it:
"We account for cryptocurrencies at cost, instead of revaluing cryptocurrencies at their fair value on each accounting reference date, to avoid substantial volatility in the value of cryptocurrencies from time to time, which may distort our results of operation and financial condition. Gains or losses from the disposal of cryptocurrencies are determined as the difference between the net disposal proceeds and the carrying amount of the cryptocurrencies and are recognized in profit or loss on the date of disposal."
Is that right? I mean, it’s probably right as a matter of technical accounting; I am not an expert in the international financial reporting standards for cryptocurrency but I assume that Bitmain’s auditors are. But is it the right way to think about this business? It seems like the right way to think about a computer-hardware company; it isolates Bitmain’s ability to build hardware and selling it for more than it costs to build. And that is, operationally, a pretty good description of what Bitmain does.
On the other hand you could also think about Bitmain as an investment fund that invests in crypto assets, and whose value as a company rises and falls with the price of its crypto assets. This would not be fair to its operating business, and you can see why it says that it would “distort our results of operations.” But I am not sure it would distort Bitmain’s “financial condition.” It seems to me that shareholders might care about the value of Bitmain’s assets, and if that value swings wildly then possibly the financial statements should too.
I realize that this is an annoying and trivializing position; it reduces any real operating business that takes payment in crypto (and holds onto it) to a crypto hedge fund with an operating business attached. But that’s what using a wildly volatile currency will do for you!
One other accounting item I enjoyed is on page 197 of the offering document, under “Other Net Loss,” where there is a line item for “loss of cryptocurrencies incurred as a result of cyber-security incidents.” There are entries there for 2015 and 2017. They’re not huge—the 2017 one was “a loss of cryptocurrencies worth approximately US$27 million, which we suspect was caused by a hacker attack”—but I like the idea of “getting your Bitcoins stolen by hackers” as a recurring expense, and I expect to see a lot more of it as more crypto-related companies go public.
Is this evidence that they use their hardware to mine their own cryptocurrencies before they sell/ship it to you? I remember reading terrible reviews for bitmain and their customer service about how orders were delayed for months because cryptocurrencies were skyrocketing.
That idea never made much sense, but IIRC their disclosures show that they ship a lot more units than they have mining internally.
might be a better title, though it is a little long.