Should Bitmain have invested in fiat? Business criticized as cryptos lose value

19 Sep, 2018
by David Robb
News
Should Bitmain have invested in fiat? Business criticized as cryptos lose value

A recent opinion piece on Bloomberg's site has pointed out a potentially major mistake in the business model of crypto mining giant Bitmain. As the company's profits fall, the analysis by columnist Tim Culpan suggests that investing in fiat currency would have made more sense.

Bitmain rapidly became one of the most significant companies in the cryptocurrency space back in 2017, as it took advantage of the skyrocketing demand for mining equipment. Culpan points out the old adage that suggests the best thing to do in the middle of a gold rush is to "sell shovels", and this is effectively what Bitmain was doing.

However, the company is now struggling to maintain its momentum, as profits have fallen off significantly in the last quarter. The $18 billion IPO that was scheduled for later this year is starting to look increasingly less likely to succeed, as investors back out and even take the company to court.

Read more: Rumor has it that Bitmain's investors threatened to take them to courtAhead of $18 billion IPO, Bitmain continues to lose money and technical edge


According to BitMEX, Bitmain has no more than 3 percent of its assets in cash, and may have lost over $300 million as a result of making investments and taking payments in cryptocurrencies. Its significant Bitcoin Cash (BCH) holdings have proven to be a particularly bad asset, as the increasingly controversial crypto token has decreased in value even more than the rest of the market over recent months.

As Bitmain is a manufacturer of crypto mining equipment, holding funds in cryptos seems to have left the firm open to much bigger losses than they otherwise would've suffered. As the price of these cryptocurrencies decline, so does the value of the hardware that Bitmain is putting out. Culpan compares this to "buying a home in the middle of a housing bubble, then putting your savings into highly leveraged mortgage-backed securities", leading to a "snowball effect".

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