Bitmain’s CEO Jihan Wu is Removed From Position as Company is Rumored to Layoff 50% of its Workforce

Founded in 2013, Bitmain Technologies Ltd. has become the world’s largest bitcoin mining corporation. Located in Beijing, Bitmain has experienced incredible success since its inception and recorded a profit of $1.1B in Q1 of 2018. At Bitmain’s peak, it held a valuation of $12 billion and as the company’s success drew more attention, CEO Jihan Wu launched plans to conduct an IPO for the company on the Hong Kong Stock Exchange. Unfortunately, things began to go south as the cryptocurrency bear market worsened. Even with its market dominance Bitmain has been unable to avoid the losses of the 2018 bear market. Most notably, Bitmain suffered an estimated $740m loss in Q3 of 2018. Now the company is rumored to lay off 50% of its workforce as CEO Jihan Wu resigns. At the start of 2018, Bitmain was one of the most promising companies in the cryptocurrency sector, so what systematic events led to its demise?

1. Backing Bitcoin Cash

Some may argue that Jihan Wu’s most destructive decision was investing Bitmain’s resources into mining and purchasing Bitcoin Cash. In August of 2017, a faction of developers, miners, and entrepreneurs chose to hard fork Bitcoin and create their own chain known as Bitcoin Cash. ViaBTC, a large Chinese mining company, was an outspoken supporter of Bitcoin Cash and helped mine the cryptocurrency early on. Bitmain was the primary investor in ViaBTC. To make matters worse, Bitmain bet the company on the success of Bitcoin Cash by accumulating nearly 6% of the total supply. According to Samson Mow, CSO of Blockstream, Bitmain sold most of their Bitcoin for Bitcoin Cash at $900/BCH. Ever since, they have taken horrific losses considering Bitcoin Cash is currently priced at $160.

2. Expensive Failure to Design a More Efficient Miner

Last year, Bitmain held 70-80% of the total market for ASICs and Bitcoin mining hardware. For the most part, Bitmain would receive cash from these sales in order to offset risk to prepare for a potential decline in Bitcoin’s price. Yang Zuoxing was the creator of Bitmain’s flagship products: the antminers S7 and S9. The innovation of the S7 reduced power consumption and chip cost by nearly 50% and the S9 improved upon its predecessor’s efficiency. From the time Yang Zuoxing arrived at Bitmain he was never properly compensated for his contributions. Shortly after Zuoxing invented the S7 and S9 Bitmain rose to monopolize the Bitcoin mining market. Zuoxing requested that his compensation be increased due to his overall contributions to Bitmain’s massive success. On June 8^th 2016, after five separate negotiations, Bitmain would not meet Zuoxing’s demands so he left the company.  Zuoxing then invalidated Bitmain’s rights to his invention in April of 2018. Bitmain CEO Jihan Wu attempted to create a new miner that would improve upon the achievements of the S7 and the S9. In the spring of 2018, Bitmain released the Dragonmint T1 which failed to improve upon the S9’s revolutionary capabilities. Bitmain’s failure to improve upon the S9 led many to question the company’s ability to maintain its monopoly-like market dominance.

3. Egotistic, Money-Burning Hash Wars

On November 15^th, 2018, Bitcoin Cash hard forked into Bitcoin SV and Bitcoin Cash ABC. A faction of the community led by Craig Wright and Calvin Ayre decided to hard fork the Bitcoin Cash chain and create their own coin known as Bitcoin SV (Satoshi’s Vision). The remaining faction of Bitcoin Cash ABC was led by Roger Ver of Bitcoin.com and Jihan Wu of Bitmain. After the split, the dominant chain would be chosen by the miners, a concept referred to as Nakamoto Consensus. In order for Bitcoin Cash to remain the dominant chain and avoid a 51% attack, Bitmain had to devote a large portion of its resources to mine the Bitcoin Cash ABC chain. On November 8^th, Bitmain deployed 90,000 S9 antminers to prepare for a hash war against Bitcoin SV. On November 16^th, BitMEX research asserted that miners in both factions of Bitcoin Cash & Bitcoin SV were operating with heavy losses. Before the fork, Bitcoin Cash was trading at roughly $600. After the fork, Bitcoin Cash fell to $220 (Nov. 20^th). Since then, BCH reached a low of $77 and is now trading at $160. In hindsight, betting the company on Bitcoin Cash proved to be a colossal mistake for Bitmain and Jihan Wu. By the end of Q3 2018, Bitmain had recorded an estimated $740 million loss, (excluding hash war expenses). This was Bitmain’s worst quarter ever and Q4 2018 is expected to be worse.

Faced with these unfortunate circumstances, Bitmain is now rumored to fire 50% of its workforce. Additionally, Jihan has also been forced to step down as CEO. According to a quote from a Bitmain lawyer,

“As a result of the redistribution of positions at the company’s executive board, Wu had been demoted from being a ‘director’ to ‘supervisor’.”

It appears as if the board of directors are trying to restructure the company’s internal leadership so it can have a chance at launching its IPO. Although board members hope this internal restructuring will reassure investors, Samson Mow has claimed that Bitmain may lay off as many as 85% of its employees, and that 50% is a conservative estimate.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers on Bitmain’s recent activity. The author of the article trades cryptocurrency.