Is There Something Fishy Behind the Bitmain IPO?

According to a report by Crypto Disrupt, manufacturer of cryptocurrency mining equipment Bitmain is holding a significant quantity of illiquid bitcoin cash (BCH). Bitmain is planning to launch an IPO, and some analysts are concerned about risks investors might take on in participating in this event. If Bitmain gets stuck holding a huge quantity of BCH that it is unable to sell, it could end up suffering major losses as a result.

Bitmain Sold BTC for BCH

Samson Mow, the CSO of Blockstream, tweeted an image that seemed to suggest that Bitmain had sold off a large quantity of bitcoin in order to buy up bitcoin cash early on in 2018. This appears to have been a gamble made on bitcoin cash; however, in the time since that purchase, cryptocurrencies have suffered a significant slump, and Bitmain's investment has likely not paid off. Bitmain sold nearly all of its BTC and acquired about 1 million BCH, perhaps in order to prop up the price of BCH in the process. Since that time, BCH has plummeted in value, costing Bitmain as much as $500 million in the process.

Unwilling or Unable to Sell BCH

According to the report, Bitmain was "unable or unwilling to sell any mined BCH," instead using up its resources which could have been put to use mining bitcoin directly in order to buy BCH.

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. Bitmain has nonetheless been able to divest about 25% of its BCH holdings in the time since the major purchase, although the market downturn means that these have mostly taken a loss. 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.

Investors taking part in a Bitmain IPO are also investing in the risks wrapped up in this situation. Any interested investors should beware of the huge amount of possibly-illiquid BCH assets that Bitmain is still holding before they buy up shares of Bitmain.

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.