Bitmain Technologies, the designer of chips used in cryptocurrency mining that is planning a landmark initial public offering (IPO), may be losing its technological edge, according to analysts at Sanford C Bernstein & Co.
The Beijing-based company, co-founded by 32-year-old billionaire Jihan Wu, may need to write down the value of its inventory as makers of rival cryptocurrency mining equipment catch up, analysts led by Mark Li at Bernstein wrote in a report on Wednesday.
Taiwan Semiconductor Manufacturing Co (TSMC), which produces the chips designed by Bitmain, should ask the company to make full prepayments and refrain from adding capacity solely for cryptocurrency-related demand, according to the Bernstein analysts.
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“The competitiveness of Bitmain’s chips is in question,” the analysts wrote.
While Bernstein called Bitmain’s performance last year a “wild success” and noted that it controlled an estimated 85 per cent of the market for cryptocurrency mining chips, the company is facing growing competition from players including Canaan and Ebang International Holdings, which are also pursuing IPOs in Hong Kong.
Demand for all of the companies’ products has come under pressure this year after a sell-off in virtual currencies cut Bitcoin’s value by more than half.
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Bitmain and TSMC did not immediately respond to requests for comment.
Bitmain, which is also one of the biggest operators of cryptocurrency mining collectives, is planning a Hong Kong IPO that could raise as much as US$3 billion, people with knowledge of the matter said last week.
A successful listing would be a landmark event for the cryptocurrency industry, which is increasingly trying to move from the fringes of finance into the mainstream.
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Speculation about Bitmain’s finances has intensified in recent days. Unverified investor presentations purporting to show details of Bitmain’s business have been circulating online, prompting discussions in cryptocurrency circles over the company’s exposure to falling virtual currency prices.
Bitmain has likely been acquiring large amounts of Bitcoin Cash, posing a “major risk” as the bitcoin offshoot’s value declines, Li said.
Bitcoin Cash has tumbled by about 68 per cent since the first week of May, versus a 30 per cent drop in bitcoin, according to Bloomberg composite pricing.