Word on the Street: BCH price bump coincides with Bitmain IPO filing

Bitmain files for IPO (medium impact)

Bitmain filed its IPO prospectus for a Hong Kong Stock Exchange (HKEX) listing on Wednesday. Bitcoin Cash, in which Bitmain is a major stakeholder, is up around 20% this week, spiking the same day the Bitmain prospectus was released.

While the price of BTC is down ~50% this year and the BCH price is down ~75% YTD the lower spread between them than the historical average indicates bitcoin’s dominance over its faster and cheaper transacting counterpart has declined in recent months and remains compressed.

The BTC-BCH spread is below the historical average while the price of BCH is down ~75% YTD

The company also published an IPO prospectus which disclosed a net profit of over $743m in 2017. Bitmain made $742m in net profit in the first half of 2018, but leaked pre-IPO documents show it made $1.17 in Q1, so Q2 has been a loss-making quarter to the tune of around $400m.

The prospectus also revealed Sinovation Ventures, a China-based investment firm led by former Google China head Kaifu Lee, has invested $12.5m in Bitmain’s Series A funding round.

Cryptocurrency mining and hardware sales are the company’s lifeblood – spurring gross profit of $71.5m in 2015 to $151.4m in 2016 and to $1.12b in 2017, an annual compound growth rate (CAGR) of 311.9%. However, the company’s overall gross profit margin has declined from 52% in 2015 to 36.2% in 2018, attributing the decline margins in 2017 and 2018 to a decrease in the average sales price of mining units and inventory impairment.

Its cash flows have been significantly impaired from accepting cryptocurrency payments and divesting of cryptos, losing $292m and $181m on both in the first six months of 2018. According to BitMEX research, Bitmain holds only 3% of its assets in cash, less than one tenth the value of its crypto holdings and as of the end of March 2018, it held 1 million units of Bitcoin Cash.

The value of crypto-currency on the balance sheet fell to US$886.9m in Q2, compared to US$1,172.4m in Q1.

The company is also diversifying its technology and chipmaking for AI solutions, a market it estimates will grow at an annual compound growth rate (CAGR) of 36.2% between 2017 and 2022.

Bitmain is the world’s fourth largest fabless chip design company in terms of revenue in 2017, according to Front & Sullivan.

Bakkt announces first BTC futures contract (low impact)

Bakkt, the NYSE’s crypto venture, announced on Tuesday the first physically-settled bitcoin futures contracts versus various fiat currencies, USD, GBP and EUR. Many media outlets, and Bakkt itself, believe the deliverable futures product would bring a Bitcoin ETF a step closer as it would create a natural demand for BTC and help stabilize its price.

Ripple’s Japanese payment venture gets green light (medium impact)

Listed Japanese financial services company SBI Holdings, a partner of the Ripple Network, has received the green light from Japanese regulators to progress with a joint venture called SBI Ripple Asia. SBI, which has an FX brokerage firm, recently launched a crypto exchange, SBI Virtual Currencies.

The companies are soon launching the Ripple MoneyTap app, that will process, handle and transmit digital payments, as an official "Electronic Settlement Agency Service Provider". The product will allow users to send peer-to-peer transactions. There has been much excitement surrounding XRP this month after it surged nearly 20% on September 18 on a slew of partnership announcements, including Saudi Arabian bank National Commercial Bank.

Ending the week with fuzzy feelings, Ripple issued a press release announcing its social impact program, Ripple for Good – a $80m project that will focus on education and financial inclusion.

XRP is down ~5% this week.

Bitcoin cross-border startup receives Goldman-led funding (low impact)

Veem, a cross-border payments platform that uses bitcoin to move money between businesses around the world without the intermediary of a bank, has raised $25m in a round led by Goldman Sachs with GV (formerly Google Ventures) and Pantera Capital among the other investors.

Goldman Sachs’ Principal Strategic Investment Group has been backing blockchain companies that have the potential to improve or disrupt the payments pipeline that services its customer’s needs such as Digital Asset Holdings, and digital payments startup Circle.

While most banks currently rely on the SWIFT network there is no guaranteed allegiance to it. There are currently 470,000 correspondents using the SWIFT messaging service but that number is down around 8% from 2011.

*The number of correspondents on the SWIFT network has decreased over the years though the number of transactions has increased. *

JP Morgan’s blockchain trial adds 75 banks (low impact)

JP Morgan’s Interbank Information Network payment blockchain – initally called Quorum – built on the Ethereum blockchain has been in the workS for several years and has built up some of the world’s biggest banks to trial its technology, including the Royal Bank of Canada and Australia and New Zealand Bank.
A Financial Times report notes that the Interbank Information Network enables peer-to-peer financial messaging, making it a rival to the likes of the most commonly-used global payments rail operated by SWIFT.

Austria to issue E1.15 billion bonds on Ethereum (low impact)

The Austrian government will use the public blockchain for a bond issuance that starts on October 2.

The Austrian bank Oesterreichische Kontrollbank (OeKB) will operate the auction on behalf of the Austrian Treasury. Austria had a change of administration back in December and now has the youngest leader in the world (31 year old Sebastian Kurz), who leads a coalition of centre and far right parties.

US stocks "officially" over values of Dotcom era (low impact)

Although mainstream media loves to draw comparisons between the cryptocurrency market and the downfall of tech stocks in the Dotcom bubble, data reveals the number of US stocks trading above 10x revenue is now way above that in 2000. The Russell 3000 index has 332 stocks above that threshold, compared to 200 in March 2000, the year of the Nasdaq topped.

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