Why Bitmain is Purposely Losing Money in its Bitcoin Mining Business

According to BitMEX Research, a group of analysts at major Bitcoin exchange BitMEX, Bitmain has been intentionally lowering the profit margin of its core business prior to its initial public offering.

Its recent controversy around its latest funding round that allegedly did not involve Tencent contrary to many reports, led investors to question the Bitmain IPO and its lucrative mining business.

In the first quarter of 2018, Bitmain generated $1.1 billion in pure profit, more than twice of the entire profit of Nvidia, the world's biggest video game chip manufacturer.

The extreme profitability of Bitmain and its positive first quarter sales led investors to acknowledge Bitmain as one of the most profitable companies in the global economy, outside the realm of cryptocurrency.

Naturally, for investors, Bitmain became the go-to investment as a bet for the long-term survivability of cryptocurrencies as an asset class, which ultimately led Bitmain to release its plans to conduct an IPO by the end of this year.

Most companies in the position of Bitmain eyeing one of the largest IPOs in the global market would allocate the majority of their resources to boost profitability and to appeal to as many investors as possible in the public market.

Researchers at BitMEX, who published an in-depth report on the intricacies of the company's balance sheet, said that Bitmain has purposefully decreased its profit margin to offer its products and services at low levels to drive its competitors out of business.

There exists a handful of companies that have dominance over their respective industries; Coinbase over the crypto-to-fiat exchange market, Binance over the crypto-only exchange market, and Bitmain over the cryptocurrency mining market.

The primary attraction point of Bitmain as an investment for large-scale institutions and retail traders in the stock market, at least as of now, is not its profitability but rather its dominance over a market that is still at its infancy.

For Bitmain, even it means losing out hundreds of millions of dollars on a quarterly basis, its focus is to continue gaining more dominance over the cryptocurrency mining sector.