Chinese cryptocurrency hardware manufacturer Bitmain seems to be bouncing back after a streak of dismal reports. Earlier this week, a local industry blog revealed that the mining giant has accumulated over $300 million in revenue so far this year and is rewarding employees with massive bonuses on Labor Day.
Bitmain has since confirmed that information to Cointelegraph but ignored additional questions. Therefore, how does a mining company go about scoring profits amid the pandemic and the Bitcoin halving frenzy, the latter of which is said to shake things up for miners?
A brief recap of Bitmain’s fluctuations
Bitmain was founded in 2013 by Jihan Wu and Micree Zhan. At the time, Wu was a private equity fund manager, while Zhan was raising funds for his TV streaming startup. Wu had allegedly spent all his savings on Bitcoin (BTC) and was looking for a way to accumulate more of the asset through industry-scale mining.
In November 2013, Wu and Zhan developed an ASIC chip that allowed to mine BTC at full capacity, thus revolutionizing the industry that had been fully reliant on less-efficient CPU setups. Bitmain’s sales soon skyrocketed (despite some turbulence caused by Mt. Gox) and by mid-2018, the company was valued at $15 billion after reportedly closing a pre-initial public offering funding round.
Around the same time, Bitmain announced its plans to expand into the field of artificial intelligence as the Chinese government began applying more pressure to the mining industry. Apparently, it was Zhan’s idea to open up an AI arm, while Wu was not fully supportive of that direction and even reportedly once called Zhan’s plan “crazy” during an internal meeting.
As Bitmain began preparing for an IPO, the company hit another rough patch due to the crypto winter that was intensifying at the time. As a result of the collapsed BTC price, Bitmain purportedly sold a substantial amount of its mining equipment at a loss throughout 2018, hoping to secure the majority of the market share for better times. Additional reports suggested that the mining giant introduced austerity measures that included massive layoffs and the suspension of its colossal $500-million blockchain data center and mining facility in Rocksdale, Texas.
By January 2020, Bitmain’s market share by hash rate had ostensibly dropped from around 75% to 66%, while an additional report came out suggesting that the mining titan is planning to reduce its workforce by another 50% prior to the upcoming Bitcoin halving — which will cut the amount of BTC awarded to miners by half.
On top of everything else, Bitmain’s plan to go public via the Hong Kong Stock Exchange eventually stalled, as companies that were previously listed as Bitmain investors began denying their involvement in the IPO.
Wu vs. Zhan
In addition to the aforementioned problems, the company has found itself in the midst of an ongoing legal battle between two of its co-founders. The issue sparked in October 2019 when Wu, who abandoned his post as CEO of Bitmain in 2018 to take on a non-executive role on its board, suddenly ousted Zhan, who was the firm’s partner and chairman at the time, from Bitmain.
According to the alleged transcripts of an internal meeting that supposedly took place one day prior to the incident, Wu told Bitmain employees that he was going to take matters into his own hands and improve Bitmain’s declining share of the Bitcoin mining pie. Additionally, he forbade staff to have any interaction with the ex-senior executive, threatening to fire those who don’t conform, and took over the company as a legal representative.
Zhan started to fight back, filing two lawsuits against Bitmain. He submitted the first one in December 2019 to a court in the Cayman Islands where Bitmain Beijing — the firm’s holding entity — is registered, while the second lawsuit was brought in last month against the company’s AI subsidiary, Fujian Zhanhua Intelligence Technology, in a Chinese court. “If someone wants a war, we will give them one,” Zhan reportedly claimed, arguing that he owned 36% of the company’s equity.
In January, Wu handed over the company’s legal representative post to Luyao Liu, the CFO of Bitmain. However, the Beijing Haidian District Bureau of Justice has recently overruled that appointment after Zhan had appealed the decision in February. It was a partial victory for Zhan since the court didn’t uphold his request to appoint him as Bitmain’s legal representative but disrupted the distribution of power within the firm by Wu.
The $300-million turnaround
Despite the legal problems, it looks like the winds are finally changing for Bitmain. On April 29, a Chinese industry blog published a report suggesting a number of positive changes for the mining giant. Bitmain later confirmed the information to Cointelegraph that it had earned over $300 million in the first four months of 2020 and regained some market share, as it opened four new mining facilities and…