Crypto mining manufacturer Bitmain is undergoing a difficult time of late, and considering reports that they hold 1 million Bitcoin Cash, should BCH investors be extra vigilant?
Bitmain’s Fall From Grace
Founded in 2013 by Jihan Wu and Micree Zhan, Bitmain quickly established itself as the dominant force in the crypto mining equipment industry.
Up until 2018, things were looking bright, having posted first-half profits of $743 million, and cemented its position as the largest manufacturer of application-specific integrated circuit (ASIC) chips.
However, things don’t always go to plan, and given the frosty reception from Hong Kong regulators, the company let its IPO application lapse in March of last year.
According to the SCMP, this decision will be revisited when the time is right.
“We will restart the listing application work at an appropriate time in the future.”
More recently, in a further sign of break down within the company, Bitmain has terminated its management agreement with Texas-based mining farm operator, DMG Blockchain.
The site in Rockdale, Texas, houses 15,000 next-generation miners and opened only three months ago. This decision calls into question whether Bitmain will follow through with its plans to go public on the NASDAQ.
“DMG and Bitmain have mutually terminated the existing management agreement as cost and operational efficiencies have not materialized as planned.“
Power Struggles Ensue
The falling fortunes of Bitmain have resulted in a power struggle between the co-founders. In October last year, Micree Zhan was ousted from his position as Executive Director.
Following this, details emerged of Wu’s plans to revitalize the company. He announced the reinstatement of two key personnel who were fired under Zhan’s tenure.
In addition, Wu also unveiled his strategy to allow the bulk purchase of mining equipment, with just a 20% deposit.
“The Bitmain you are familiar with is back,” he said.
Sadly, part of this shake-up also means further staff cuts, with plans to halve their workforce. Dovey Wan tweeted about the feeling amongst Bitmain’s staff, who are angered by these latest turn of events.
Poor Bitmain employees who have been “optimized” out trying to protest as their last resort …
— Dovey 以德服人 Wan 🗝 🦖 (@DoveyWan) January 9, 2020
What Might This Mean For Bitcoin Cash?
While redundancies are never welcome news, in truth, the entire cryptocurrency industry is up against a backdrop of uncertainty, not just Bitmain.
Even so, there’s no uncertainty as far as Wu’s support for Bitcoin Cash is concerned. Indeed, Wu has always been an advocate of increasing Bitcoin’s 1mb transactional capacity and was instrumental in 2017’s hard fork.
During the failed Hong Kong IPO attempt, financial records that were made public, showed that Bitmain was holding 1 million BCH.
Blockstream CSO, Samson Mow, claims that Bitmain sold off a substantial amount of Bitcoin in order to acquire more Bitcoin Cash in 2018, which some speculate was key in propping up the BCH price.
However, this move, and the resultant “war” between Bitcoin and Bitcoin Cash, backfired, and Bitmain and Wu both suffered greatly as BCH declined sharply against BTC.
“One of the major problems with the bitcoin cash purchase is that BCH is not nearly as liquid as BTC. BCH has far fewer buyers in the current climate than BTC and essentially zero over-the-counter market opportunities.”
Now, with news of Bitmain’s further struggles, talk of the company dumping their BCH holdings is a real possibility.
Not only would this drop the BCH price, but according to Nathan Reiff, such a scenario would result in network exposure to hackers.
“Further exacerbating the problem is that if Bitmain does decide to dump the remaining BCH it holds, the network will become highly susceptible to a 51% attack in the process.”
How Bitmain navigates with this potential BCH sale could be a critical even that determines the future of the Bitcoin hard fork.
Featured image from Shutterstock.