Bitmain IPO presents a new way to bet on cryptocurrency prices
There might be worse ways to invest in shovels during a gold rush.
Bitmain, the world's largest cryptocurrency mining company and one of the overall biggest crypto companies in the world, is planning an initial public offering (IPO) with the intention of pulling in $18 billion and bringing the total market valuation to $40 to $50 billion.
Beyond the magnitude of the company and its fundraising plans, it might be seen as a curious way to bet on cryptocurrency prices, notes Cornell professor and cryptocurrency developer Emin Gün Sirer who likens Bitmain stock to a bitcoin ETF as a functionally similar financial product.
It's unlikely to attract the same amount of interest though. Most of the anticipation around bitcoin exchange traded funds (ETFs) probably wasn't from people who planned to actually use it, but rather from bitcoin holders who were hoping it would raise prices because other people were using it.
At the same time, it's an interesting and potentially overlooked perspective, with cryptocurrency indexes, tokenised equity and other investment-type cryptocurrency products like ICONOMI's "digital asset arrays" cropping up.
Functionally, Sirer says, Bitmain share prices might work like a uniquely adaptable cryptocurrency basket with a strong emphasis on proof-of-work cryptocurrency, but a very large sideline in Bitmain's many other areas of interest.
"Bitmain's main cash flow comes from selling miners of different kinds," he said. "If one currency wanes in importance and another one rises, Bitmain will still make money, assuming it can deliver the goods. So the future cash flows will automatically track the hottest currencies... If BTC or BCH go up in value, the main beneficiary will be Bitmain... The main risk is the rise of non-PoW currencies. Bitmain will probably have to diversify to allay this risk."
Fortunately for prospective buyers, Bitmain's diversification efforts are already well underway.
It has invested in Block.one, the fundraising company that launched non-PoW cryptocurrency EOS. It has also invested in Circle to make inroads in an attempt to create a new widely-used stablecoin with Bitmain as a new central bank.
And outside the cryptocurrency space, it's examining a future as a manufacturer of AI computing chips, speculating that it could account for as much as 40% of Bitmain's profits in five years' time.
But whether it's enough for Bitmain to weather the potential extinction of bitcoin, or whether Bitmain stock will be able to outperform bitcoin if it goes back up, is anyone's guess.
A lot of private traders are betting it will though. Slightly ironically, the Singapore government is one of those private traders, which might not do much for bitmain's "decentralised anti-government" street cred.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.