Is Bitmain Blowing Up or Scaling Up? We take a look at the evidence behind the conflicting reports concerning mining behemoth Bitmain Key Takeaways Reports have been conflicting regarding the operating health of BitmainThe evidence on both sides is weak and non-verifiableA number of external factors support the case that Bitmain may be scaling up its proprietary mining operations There have been conflicting reports recently regarding the operating health of mining behemoth Bitmain. On the one hand, the company has changed the CEO and has also failed to follow through on its IPO application. Even more negative has been the reports that the mining giant is unable to meet costs and debts. However, these reports only tell one side of the story. On the other hand, new hardware models have been released and there are those that say Bitmain has been putting in place plans to expand their proprietary mining operations. We break down both sides of the argument to assess the evidence backing the claims. Is Bitmain Going Belly-Up? The following are the commonly cited reasons backing the speculated demise of Bitmain: Failure to pay debtsFailure to meet costs associated with running the businessChange of CEO signalling distress at the companyBitmain betting big on Bitcoin Cash and failingFailure to follow through on the IPO application Bitmain has indeed lost large amounts on their holdings of Bitcoin Cash and other altcoins. This much has been well-documented. The business certainly has ongoing costs. There are costs associated with staff, hardware, and funded programmes. However, a behemoth of the scale of Bitmain may very likely be able to weather such losses and costs. Documents released as part of Bitmain’s IPO application process show that the company was highly profitable in 2017 and early 2018 and built up a considerable amount of assets during this time. The company likely has significant space to sell such assets if they are struggling to meet costs. The only mission-critical among the cited reasons is the failure to meet debts. On the debt side, Bitmain sources its chips from Taiwan Semiconductor (TSMC) with payments reportedly mostly made in arrears. Bitmain actually becoming bankrupt would most likely be as a result of the company failing to make debt payments to TSMC. It is reported that they paid over $1.3 billion to TSMC in the first half of 2018 alone. There are a number of reasons why the evidence driving such speculation is weak. The speculation has mainly been driven from news sites with no verifiable sources of evidence. Another major source driving the speculation has been Twitter account @btcking555 whose account is solely dedicated to making claims against Bitmain. There have furthermore been no actual official announcements from Bitmain or TSMC regarding the matter. Is Bitmain Scaling Up? Similarly, reports regarding Bitmain scaling up their proprietary mining operations are mostly based on non-verifiable sources. The claim is that Bitmain is willing to deploy $80 to $100 million worth of hardware equipment into mining farms in China’s Southwest regions. The claims are based on the reports of mining farm operators in China’s southwestern provinces. Despite the fact that these reports are non-verifiable, there are a number of factors which would indicate that it would make sense for Bitmain to scale up proprietary mining operations: A significant drop in the Bitcoin network mining difficulty Excess of energy leading to cheaper electricity rates in China’s southwestern regionsRecent hardware releases by Bitmain would result in a competitive advantage if Bitmain were to use this hardware for proprietary mining Price declines in November resulted in a significant drop in the Bitcoin network mining difficulty as hundreds of thousands of miners came offline as they failed to meet costs. This improves the probability of the miners that remain online receiving block rewards and may be acting as an incentive for Bitmain scaling up proprietary mining operations. A drop in difficulty alone would likely not be enough to spur Bitmain to make a significant investment in its proprietary mining. However, Bitmain’s recent development of its latest ASIC hardware models may be incentivising the company to use these hardware models for their own operations while most miners will still be utilizing less powerful models. Excess energy from hydropower plants has also led to lower electricity rates in the Southwestern regions but this is more relevant to smaller-scale miners as Bitmain likely already have energy deals based on the economies of scale at which they are operating. Belly-up versus Scaling Up In many cases, there is no smoke without fire. In the libertarian world of cryptocurrencies, there are so many smoke signals that you often need to question the fire. Right now, it seems that the evidence is that Bitmain is in good operating health and is more likely to be scaling up than blowing up. Although the claims for Bitmain both blowing up and scaling up are mostly non-verifiable, a number of other factors indicate that it may be the opportune time for Bitmain to focus on its own proprietary mining operations.