Mining Giant Bitmain Faces “Exit Scam” Allegations ahead of IPO

Bitmain, the Chinese mining conglomerate, is raising eyebrows ahead of its IPO in August 2018 after critics pointed out the firm is holding vast amounts of Bitcoin Cash (BCH). The company’s founder, Jihan Wu, is a popular proponent of the controversial Bitcoin hard fork.

Bitmain’s BCH Woes

On August 11, 2018, Blockstream CSO Samson Mow tweeted a post detailing Bitmain’s move ahead of their IPO announcement. Mow believes the mining giants could have “wiped a billion off their balance sheet” if it weren’t for Bitcoin developers who disclosed the BCH vulnerability.

Bitmain is alleged to have purchased huge amounts of Bitcoin Cash after the latter hard forked from Bitcoin in August 2017 amidst colossal controversy. The company may have enjoyed an impressive valuation on paper in this regard, but after the currency’s massive drop in value, Bitmain is said to have lost over $500 million.

Mow’s tweet additionally indicates the company gambled on the survival of Bitcoin Cash in 2018 and sold its BTC holdings to acquire more BCH. Unfortunately, this move has not paid off for the Beijing-based company, and critics now believe the upcoming Bitmain IPO is perhaps the worse investment for equity investors.

BCH’s Investor Woes

In an August 2018 follow up to a Medium post from March 2018, author Crypto Cat ascertains Bitmain holds illiquid amounts of Bitcoin Cash, which can’t be sold as there are no buyers in 2018’s notorious bear market.

The post further dives into Bitmain’s poor operational decision of using up its wealth to purchase BCH instead of investing in its core manufacturing business. Embedded screenshots provide evidence to this point, and show decreasing USD balance despite a stable BCH balance.

(Source: Medium)

In addition to the lack of an OTC market for BCH – and Bitcoin’s dominance over 50 percent of the total cryptocurrency market cap – Bitmain could make the Bitcoin Cash network susceptible to a 51 percent attack, in case they do decide to dump their holdings.

Investor’s Liquidity Woes

The post notes that Bitmain’s once-lucrative mining business is faltering after increasing mining difficulty and low profits have failed to render an adequate profit return-on-investment for the $8 billion valued firm. The firm has also hinted back in March 2018 at exploring the artificial intelligence market in an attempt to capture value beyond the realm of crypto. According to Bloomberg, the Chinese firm is looking to compete with Silicon Valley in the field alongside “Google’s AI-focused tensor processing units.”

Apart from the Medium author and Mow, twitter user Vijay Boyapati also expressed his critical views on the subject.

11/ The upcoming IPO is one way of untangling themselves from this situation. However, once public, shareholders will want to know why Bitmain is continuing to divert profits to propping up a failed currency and how they intend to liquidate their massive position in BCash. — Vijay Boyapati (@real_vijay) August 13, 2018

4/ The creation of BCash was based on the fear that if Bitcoin were to scale using second layer technologies (such as Lightning Network), Bitmain's profits through mining fees might dwindle. Jihan's solution was to attempt to replace Bitcoin with Bcash. — Vijay Boyapati (@real_vijay) August 13, 2018

If all points are considered, Bitmain faces a grim situation regarding finances and reputation. While the company is risking government sanctions and court hearings in case investors feel defrauded, the latter group risks their money by investing in a company with dwindling mining profits and a string of uncertain future endeavors.