The Bitmain IPO & BCH Problem

Today I want to talk a lot about Bitcoin Cash and how it’s on the precipice of something major happening. The situation appears to be a lot worse than I thought. Easily the biggest news of today is Bitmain starting an IPO for their company, and what implications this has. But it’s been a minute. Let me give you a little bit of history as to my own stance on this controversial crypto. When I first started my channel, and the Bitcoin fork was as yet unnamed and barely rumours, I was a fan of the idea. I covered it a lot and was excited to see Bitcoin Cash get listed.
My feelings started to change when I saw what the mining situation was like. I’m very much of the opinion that one of the major reasons Bitcoin is valuable is if it is censorship resistant, which centralization is very much a threat to. Bitcoin Cash was very much DOA without the support of Bitmain, an organization I don’t like because they centralize mining somewhat.
But I’m not trying to state that Bitcoin is better, this is not a discussion about Blockstream vs big blocks, not a scaling discussion, that’s for you to decide.
Recently I talked about how the scariest thing for me is this dude. Because he has authority over 300,000 Bitcoins and Bitcoin Cash coins, but that’s nothing potentially compared to the situation of Bitmain and Bitcoin Cash.
Now thankfully this doesn’t look like it would affect Bitcoin all too much, at least not on paper, because they seem to have traded a lot of BTC for BCH, but damn scary if you do primarily hold BCH or own some.
Here’s where the concerns start. Why are Bitmain fundraising in an IPO? This is where a company goes public and shares are sold off at a set price before they hit the stock exchanges. A lot like an ICO, now you know where the idea comes from if you didn’t already. But why are they selling off portions of their company? We don’t know, it could be to fundraise some future projects, or they’re in a bad financial situation. We can’t say for sure. Speculators think they’re in a bad situation due to the market, and trades which could have cost them hundreds of millions this year. Let’s explore that for the moment.
Here is some promotional material for potential investors into the IPO. Showcasing their cryptocurrency inventory: https://medium.com/@btcWolves/a-bch-update-bitmain-bch-the-ipo-what-it-all-actually-means-354220b86ac3 We are going to assume for the moment that they are being open and honest here about their holdings.
From the 31st of March this year, we can see they are claiming to hold over 1 million Bitcoin Cash tokens. One million? That is a crazy amount of coins. Let me put into perspective how many coins that is. You could theoretically bring the price to zero on any single exchange if you dumped that much at once. How did this happen?
A couple reasons. First thing that’s important to note though is that they’d prefer we all use BCH because it keeps their patent pending ASIC Boost advantage in place over anyone else who doesn’t have it. https://www.ccn.com/asicboost-increases-profits-2000-bitcoin-miners-utilized-covertly/ Imagine needing to ask for permission to be on the same level as others when mining. This is what centralization is. SegWit removes this advantage levelling the playing field for miners, but only the Bitcoin chain has it.
Second is that miners are concerned that they would lose out on mining transaction fees due to second layer solutions like lightning network taking the majority of those fees instead. These are major reasons why companies like Bitmain are financially incentivized to see the success of Bitcoin Cash.
Anyway, how they got so many tokens can be broken down into 4 things. Number 1 is on August 1st they received their BCH for free in the fork as we all did if we held some Bitcoin for that blockchain snapshot. They happened to hold a lot. Estimated to be around 75,000 Bitcoins at the time. So, a lot of BCH too. That was very nice of the forkers to give us free money wasn’t it? Not so nice if you bought any Bitcoin Cash, unless you happened to sell at the right times. : https://imgur.com/8vr4S2M Generally you’d have lost a lot more money with BCH than BTC if you just held for one year. But it’s still early days, BCH is only 1 year old.
Number 2 reason is they seem to have not sold the BCH they were mining. Eating enormous electricity costs in the process.
Number 3 is abuse of the EDA, or emergency difficulty adjustment which was unique to BCH. What was happening was the mining difficulty would have these wild swings, so when the difficulty was high Bitmain would mine the BTC chain, and then when the difficulty dropped super low they switched over a lot of hash power. This led to blocks being formed super fast on occasion. That’s why there’s 90 million more Bitcoin Cash tokens than Bitcoins. Foul play or not, incompetent coders or not, that’s just the reality of the situation. And I’m not even going to talk about a bug recently discovered in the code which looks like it might cause the Bitcoin Cash chain to fork itself if not corrected.
Number 4 reason is speculative, but it appears that Bitmain holdings of Bitcoins have dwindled in the past year while they’re bitcoin cash token holdings have increased. Have they been supporting the USD valuations of BCH by setting up buy walls? Trading BTC for BCH? No one knows for sure except the exchanges in question. A likely possibility.
But these records only go as far as March of this year. Has anything significant happened since then? Yes, you could say that. Bitcoin Cash is now worth half as much as it was in March due to a prolonged bear market. This has seemingly put the squeeze on Bitmain financially. Not only that but their attempts to improve on their S9 Antminer, which was first introduced to the market back in 2016, have reportedly all ended in failures, giving way to other mining companies.
They’ve reduced their holdings since then by about 25%, and are now selling a portion of BCH that they are mining, creating more downward pressure on the coin than there has been in the past. But still face the problem of not enough market depth to shed more of their holdings without significantly hurting a coin they want to succeed.
They cannot just switch over their hash power to purely BTC either, BCH would then show vulnerabilities of a 51% attack, which is where foul players could create an inordinate amount of coins and dump them on exchanges, before exchanges realise the network is under attack and shut off BCH trading. Again, hurting significantly, and potentially irrevocably, a project they want to succeed.
In summation the situation right now with Bitmain and Bitcoin Cash is much worse than I thought it was. If Bitmain are in a bad financial situation, a big if, but if so they need to hope and pray for a bull market soon in order to stay afloat, or sell a whole bunch of shares in their IPO which may be unlikely in this bear market, or they risk needing to dump their BCH holdings to remain in business.
Another potential threat is what happens when shareholders demand the company be more profitable by ceasing to divert profits to supporting Bitcoin Cash chain and/or liquidate their unreasonably large position on Bitcoin Cash.
Personally though I think it’s more likely that Bitmain is just fine financially and many of these fears may be unwarranted. Or even if they’re not maybe the IPO is going to save them from needing to dump their coins.
The main issue here is and why I think this warrants a video is even if Bitmain are doing just fine financially and this is all FUD, the fact that this could be a possibility is concerning and is a good lesson for why centralized mining is bad.
Links to everything I’ve talked about is down below, and where I have speculated, I have let you know they were just speculations. I am not attempting to create fake news or drama, but share facts and concerns. Bitcoin Cash could go under never to rise again or due to some spectacular marketing it overtakes Bitcoin as the new #1 by market cap. Or just stays where it is, I have no idea. Please do your own research, I don’t want to be held responsible for your financial investments at all.
Let me know what you think below, full disclosure I don’t care about the scaling debate. Let both chains do their own thing. I own some Bitcoin Cash, but not a lot. So, I’m not too concerned with this situation. But maybe I should be, maybe this is bad for all of cryptocurrency.
Anyway lets move onto the markets: Against all odds Bitcoin has defended its price above $6400. Even though it looked close on occasion, dropping as low as $6183 on Friday, we have not tested key resistance levels of $6000. Not yet at least. Bitcoin at its current price is right on the trendline, with anything above this current price being considered a positive.
This spike in Tether is what the current price is attributed to. $50 million of new tokens were minted. Some may say that isn’t enough to cause a pump, but $50 million goes a long way when you realise market caps are a lot smaller in reality than what we see.
Manipulation or pure honest trading. No one knows for sure except the issuers of Tether. But it’s pretty obvious.
Quick shoutout to CoinGecko which shows coins which sometimes have yet to be listed on CMC. So if you’re looking for a coin recently on the market and can’t find it, you might want to check this website out.
https://www.coingecko.com/en
It shows you stuff like the all-time high price on the side, and percentage since all time high. Always fun.
Quite a while back I did a review for ABCC exchange, so just a quick update on their progress.
https://www.coingecko.com/en/coins/abcc-token
They started off with quite the hype it seems, 50 cents jumping all the way to $3.50, with things correcting as of right now. They’ve released their mobile app 2 weeks ago and the user experience is pretty good, links down below if you want to check them out. If the exchange does well holding the coin is said to be valuable as 80% of trading fees are redistributed to token holders, so like most projects adoption = success.