If you’re into juicy corporate drama, you need to start following the strange saga at Bitmain. The last two years have been a wild ride for the massive cryptocurrency mining company.

What is Bitmain

Before getting into the fun stuff, a bit of backstory about the company. Bitmain is a privately-owned Chinese cryptocurrency mining firm founded by Jihan Wu and Micree Zhan.

Bitmain designs and manufactures application-specific integrated circuit (ASIC) hardware for use in crypto mining operations. Mining ASICs are powerful computer components designed to be good at solving the complex mathematical equations needed to add blocks to the chain. Miners who add blocks to the chain are rewarded for their work with compensatory coins (for example on the Bitcoin blockchain you’d receive an amount of BTC).

Bitmain is largest manufacturer of this specialized hardware, as well as the owner of the biggest Bitcoin mining pool, BTC.com. The meteoric rise in Bitcoin’s price throughout 2017 led to soaring profits for Bitmain. It’s estimated that their net profit in Q1 2018 was over $740 million[1].

Those following the crypto markets know that 2018 was not a great year for Bitcoin, however. As prices cratered, Bitmain was forced to sit on $1 billion in unsold inventory and losses piled up[2]. To raise capital, the company filed for an IPO in September of 2018 in Hong Kong. However, by the spring of 2019, the filing had lapsed due to concerns about the organization’s true value.

It’s fair to assume that the financial realities of the situation put a lot of pressure and stress on Bitmain’s management team, specifically the founders. This is when things get interesting.

The drama begins

A year after the initial bad financial news came out, Jihan Wu ousted co-founder Micree Zhan from the company[3]. Although Zhan still held approximately 40% of the company’s shares, he was no longer to be the firm’s legal representative or engage in business operations. More than that, however, Wu sent scathing emails to Bitmain employees warning them not to associate with Zhan. It went as far as to threaten termination and legal response for employees who did not comply with the edict.

Days after Zhan’s dismissal, Bitmain again filed for an IPO, this time in the United States[4].

Zhan quickly fired back, claiming he was unaware of the ousting until he had seen it in the news. Zhan then threatened legal action to retake his position in the company.

Months later, in January of 2020, rumors swirled that Bitmain was cutting 50% of its workforce for cost-reduction purposes. The dismissed Zhan denounced the moves, saying in an open letter “I am firmly opposed to layoffs! We don’t need to lay off people! We cannot play suicide!5” This refers to Zhan’s belief that downsizing would equate to allowing competitors a chance to take market share.

A week after news of the layoffs and Zhan’s impassioned criticism, Bitmain became embroiled in yet another controversy. Through online leaks, it was alleged the company was connected to Bitclub[5], a company currently under investigation by the United States Department of Justice for fraudulent activity[6]. This potential connection to illegal activities jeopardizes the United States IPO as well.

Drama intensifies

If you thought that would be enough corporate drama in less than the two years for any organization, you’d be wrong. Rather than calming down, things got weirder in 2020.

In May, Chinese officials met with Zhan and Bitmain’s then-legal representative, Liu Luyao, to settle a portion of the ongoing legal dispute between the two parties. Here, Beijing authorities backed Zhan and attempted to transfer Bitmain’s updated business license to him.

A fight ensued. A literal, physical fight. The police were called and both Zhan and Liu were taken to the station for questioning.

With the court’s decision made, Zhan was officially the company’s legal representative again. Bitmain was openly defiant of the ruling, issuing a statement that included “We recognize Liu Luyao as the currently effective legal representative of Beijing Bitmain” and “we will not acknowledge any action taken by Zhan.[7]

The power struggle continued and since then, it seems there have been concerning stories relating to the internal strife . This has spilled into everyday business operations now.

In June, Zhan was accused of causing delays to shipments, including Bitmain’s new mining ASIC, the Antminer T19. While unconfirmed, the alleged reason for this “strategy” was as another power play against Wu. Wu heads the miner sales department and delaying the sale of mining hardware could put pressure on him.

Then, in late July, reports surfaced that 10,000 Antminer units were stolen from Bitmain facilities in Mongolia. Who’s the blame? That depends on whether you ask Zhan or Wu. Zhan blames Wu, and, as you may have predicted, Wu blames Zhan.

The most recent, but probably not the last, chapter to this saga happened on August 6th. Bitmain announced more delays for their Antminer products. This time, saying that June and July orders would have to wait three extra months before being received. Now, consumer and business clients are suffering the consequences for the co-founders’ fight for control.

What happens next

Normally, this type of high stakes cat-and-mouse corporate bickering isn’t something that plays out in such a public fashion. While undoubtedly entertaining for the press and unaffiliated onlookers, you have to wonder how the investors feel about all of the drama.

With a failed IPO already in their past, another one looms large. Years of intense leadership quarrels have resulted in warring factions within the company itself. Combine these issues with a loss of consumer confidence and Bitmain finds itself in a strange position. The price of Bitcoin has recovered and the company still sports 4 out of the top 5 miners in the industry, but are the underlying structures of the organization strong enough to make it through the turmoil? Only time will tell. So, go make some popcorn and we’ll keep you updated on new developments as they happen.

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[1] Bailey Hu, “Bitmain files for IPO in Hong Kong”, TechNode, Sept. 27, 2020, https://technode.com/2018/09/27/bitmain-ipo-hong-kong/

[2] Joyce Yank, “Bitmain IPO concerns: the crypto giant recorded a big loss in Q2 2018”, Sept. 27, 2020, https://techcrunch.com/2018/09/27/bitmain-ipo-concerns/

[3] Zheping Huang, “Top Bitcoin Miner Engulfed in Power Clash as Co-Founder Ousted”, Bloomberg, Oct.29, 2019, https://www.bloomberg.com/news/articles/2019-10-29/top-bitcoin-miner-engulfed-in-power-clash-as-co-founder-ousted

[4] Mekebeb Tesfaye, “Two Chinese crypto hardware firms have filed to go public in the US”, Business Insider, Oct. 31, 2019, https://www.businessinsider.com/bitmain-canaan-file-for-ipos-in-us-2019-10

[5] Helen Partz, “Ousted Co-Founder of Crypto Mining Firm Bitmain Opposes Layoffs”, CoinTelegraph, Jan. 6, 2020, https://cointelegraph.com/news/ousted-co-founder-of-crypto-mining-firm-bitmain-opposes-layoffs

[6] Larry Baker, “Bitmain IPO set to fail after link to Ponzi Scheme found”, CoinGeek, Jan. 14, 2020, https://coingeek.com/bitmain-ipo-set-to-fail-after-link-to-ponzi-scheme-found/

[7] Wolfie Zhao, “Internal Struggle at Bitcoin Mining Giant Bitmain Escalates to Physical Confrontation, Yahoo News, May 8, 2020, https://www.yahoo.com/news/internal-struggle-bitcoin-mining-giant-094035538.html