Forecasting is futile in the face of a vastly uncertain and opaque world. How many five-year business plans remained accurate as a global pandemic spread hit the world.
What Nassim Taleb terms “Black Swan” events are far more important in how developments shape up. These outlier events have a significant impact and are mostly explainable in retrospect which gives them the impression that they could have been forecastable.
The Bitcoin mining industry is no different. There may have been indications that trouble was brewing between Bitmain co-founders Micree Zhan and Jihan Wu but who would have imagined that it would escalate into a year-long toxic battle.
Here’s the estimated growth in the market for cryptocurrency mining hardware from a Bitmain IPO prospectus in 2017. With Bitmain holding ~85% market share at the time, they certainly anticipated to capture the lion’s share of a market which was believed to steadily grow over the following years.
Such growth estimates are typical of any forecasting. Take previous growth figures and extrapolate it into the future. Don’t take in any of the uncertainties that await in the future world. Following this modus operandi, nobody took into account the possibility of a prolonged decline in crypto asset prices or a co-founder feud which surfaced as early as 2015 escalating into a battle which would have a material impact on the firm’s business.
The battle for control between Bitmain co-founders Jihan Wu and Micree Zhan has been one of the most impactful and unexpected events of 2020 in the Bitcoin mining industry. The unfolding event has significantly damaged the brand image of Bitmain and has caused a significant loss of customers for the largest Bitcoin ASIC manufacturer.
MicroBT – the only other manufacturer with a rig that roughly matches the efficiency of Bitmain’s latest-gen rig – has captured the lion’s share of the departing customers. This has served to intensify the competition in the Bitcoin ASIC hardware market.
The event also had a material impact on the Bitcoin network. The battle caused significant delays in Antminer S19 rig deliveries and stopped many miners from deploying more hashrate in response to higher prices.
In 2017, Bitmain estimated that they controlled 77% of the Bitcoin ASIC market. However, the dominance of Bitmain has been dwindling and the battle between Micree and Jihan has put the firm’s future at greater risk.
The event is still unfolding and it is unknown how it will play out. We document the developments to date and will update as future events unfold.
The Buildup to the Bitmain Battle
2013 – Over the previous years, Jihan was a key advocate for Bitcoin in China. His interests led to involvements with two cryptocurrency mining hardware companies which both failed. Jihan reached out to Micree because of his technical expertise. Bitmain is co-founded by Jihan and Micree. Both Micree and Jihan act as the co-CEOs of the emerging company.
2017 – Bitmain dominates the Bitcoin ASIC manufacturing market and has entered into almost every sector of the Bitcoin mining industry. Bitmain claims to control 77% of Bitcoin ASIC sales and 85% of crypto ASIC miner sales. The firm also operates proprietary mining facilities and several mining pools. Bitmain close a Series A fundraising round in September which raises $50 million. Sinovation Ventures, Sequoia Capital China, and IDG Capital participate in the round.
Read more: A Taxonomy of the Bitcoin Mining Industry
June 2018 – Bitmain raises $292.7 million in a Series B fundraising round. the round values the company at $11.7 billion. Sequoia Capital China lead the round and EDBI and Coatue also participate.
August 2018 – A Series B+ fundraising round values Bitmain at $14.5 billion. The company raised $422 million through the round. Crimson Ventures led the found and six other entities participated. An application to carry out an IPO on the Hong Kong Stock Exchange (HKEX) is filed. The IPO draft prospectus revealed that Zhan and Wu hold 3.9 million and 2.2 million Class B shares respectively in Bitmain’s holding company. Class B shares give the holder the right to exercise ten votes at board meetings while Class A shares hold the right to exercise one vote. The IPO prospectus further noted that Wu owned 20% of Bitmain’s shares while Zhan owned 36%. However, the Class B shares held by Zhan puts his voting power in company meetings at roughly 60%.
November 2018 – Rumours surface on Chinese media that Jihan Wu is being ousted from Bitmain. Bitmain representatives clarify with Coindesk that there have been changes with the board of Beijing Bitmain Technology, the operating entity of Bitmain. Micree Zhan became executive director after previously acting as chairman. Jihan Wu becomes supervisor after previously acting as board director. The Bitmain representatives emphasize that there were no changes at the holding company, BitMain Technologies Holding Company. Both Jihan and Micree still act as co-CEOs.
December 2018 – After the bear market negatively impacts ASIC sales and significant losses on Bitcoin Cash holdings, Bitmain is forced to layoff roughly 3,000 staff.
January 2019 – Chinese media reports that the Bitmain board of directors have decided to replace Jihan and Micree as company CEOs. There is no timeline for the replacement.
February 2019 – Matrixport is established and rumours surface that Jihan Wu has coordinated a group of former Bitmain employees to lead the financial services firm. It is unclear to the public whether the firm will be linked to Bitmain or if it is a separate entity.
March 2019 – Former Bitmain employees report that a divide is forming between Micree and Jihan. The sources explain that two camps have formed within Bitmain. Those aligned with
Jihan mainly focus on blockchain and Bitcoin Cash while Micree’s camp are dedicated to designing mining rigs. The IPO application to the HKEX expires. Haichao Wang steps in as the new CEO of Bitmain. Both Micree and Jihan will act as directors.
June 2019 – Research by CoinShares estimates that Bitmain’s share of the Bitmain ASIC market has declined to ~66%.
July 2019 – Matrixport launches. The firm is co-founded by Jihan Wu and Ge Yuesheng (Cynthia Wu). Ge Yuesheng is a former Bitmain employee and a shareholder in Bitmain with a 4% ownership stake. Ge Yuesheng will act as CEO of Matrixport. Public business registration information reveals that Matrixport is owned by Bitmain. Matrixport is registered as a Singaporean company but is fully owned by Bitmain Pte which is also incorporated in Singapore. In turn, Bitmain Pte is fully owned by Bitmain’s holding company.
Jihan Wu Coordinates Removal of Micree Zhan
October 2019 – The battle for control of Bitmain officially begins as Jihan Wu returns to Bitmain and coordinates the removal of Micree Zhan. Zhan held the positions of legal representative and chairman when Jihan returned. Zhan was reportedly attending an artificial intelligence conference in Shenzhen to promote Bitmain AI products while Jihan coordinated his removal. On the same day, Jihan sends a memo to all Bitmain employees notifying them that Micree no longer held a position at Bitmain. The memo legally threatened employees that they may face legal repercussions if they contact Micree. In a meeting later in the day, Jihan explains that Micree and himself have had an ongoing feud since 2015. Jihan takes over the positions of legal representative and chairman. The position of legal representative is an extremely powerful position in China. The position is typically held by a company’s chairman or CEO and those that hold the position have broad powers to act on behalf of the company. The legal representative holds the company seal which is critical for bringing company decisions into effect. It was initially unclear how Jihan removed Micree given that Micree is Bitmain’s largest shareholder. In the aftermath, it came to light that an Extraordinary General Meeting was held in the absence of Micree that reduced the voting power of Class B shares from ten votes to one vote. This reduced the voting power which Micree held from 60% to roughly 30%.
November 2019 – Zhan publicly addresses his removal through a WeChat post. Zhan admits that he was unaware of the intentions to remove him and commits to returning to Bitmain through legal proceedings. Zhan files a lawsuit in the Cayman Islands – where Bitmain’s holding company is registered – requesting that the decision of the Extraordinary General Meeting which reduced his voting power be voided.
December 2019 – Bitmain requests to the Beijing Haidian District Bureau of Justice that the Chief Financial Officer (CFO) Luyao Liu replaces Jihan Wu as the legal representative of the Bitmain operating branch.
January 2020 – The Beijing court approves the registration of Luyao Liu as legal representative.
February 2020 – Zhan appeals the decision to appoint Luyao as legal representative and requests that the court restores his position of legal representative instead.
March 2020 – Micree files a second lawsuit in China’s Fujian province against Bitmain’s subsidiary Fujian Zhanhua Intelligence Technologies and Bitmain’s Beijing entity as a related third party. The details of the lawsuit are uncertain but the court stated that the legal case is related to a “shareholder qualification confirmation dispute”. A new entity called Chongqing Guiyuan is formed in Jihan’s hometown of Chongqing. The entity is a fully-owned subsidiary of Bitmain Pte with Ge Yuesheng registered as the legal representative.
April 2020 – Bitmain transitions customers payments for Antminer rigs from Fujian Zhanhua to Chongqing Guiyuan. Zhan’s appeal to block Luyao from becoming legal representative is granted. Micree regains the status of legal representative of Bitmain’s operating entity.
May 2020 – A physical confrontation occurs when Zhan goes to collect his new registration licence from a court in Beijing. Zhan was surrounded by several Bitmain employees including Liu Luyao. Liu seized the licence as the Beijing court attempted to give it to Zhan. Parties involved were taken to a local police station after the court informed police. Shortly afterwards, Zhan signs a document to fire Luyao Liu. After Micree’s success regaining the status of legal representative, Jihan formed another new entity – Beijing Guiyuan Dalu – on May 26th. The entity is a subsidiary of Bitmain Hong Kong which is also the parent entity of Bitmain Beijing (the key operating entity). Jihan was also reported to transition the Bitmain IP and payment details for Antminer rigs to the new company.
June 2020 – On June 3rd, Micree uses a team of private guards to return to Bitmain and takes control of a key Bitmain subsidiary based in Shenzhen. The subsidiary – Shenzhen Century Cloud Core Technology – plays an important role in the delivery of Antminer rigs. Micree halts shipping at the subsidiary. Zhan also takes control of Bitmain’s official WeChat account. It starts to become evident that the battle between Micree and Jihan is taking a significant toll on Bitmain’s business. The CEO of Russian hosting provider Bitriver reports that many of his clients had transitioned to MicroBT. Micree also halts customer payments to the recently formed entity Beijing Guiyuan. Bitmain’s website – controlled by Jihan – posts a notice that chip processor supply to the Shenzhen subsidiary had been cut off:
“Bitmain Hong Kong has suspended the chip supply for the time being to Century Cloud Core, which is now controlled by Zhan’s relatives, until we are assured, through negotiation with Zhan’s relatives, that they are committed to protecting the interest of Bitmain’s customers and of the company as a whole”
In response, Zhan published a public letter claiming that he offered to purchase Jihan’s shares at a company valuation of $4 billion. In the letter, Zhan progresses to publicly accuse Jihan of several illegal acts including embezzlement and forging company documents. Zhan claims that the closed-door meeting to reduce Zhan’s voting power never happened and that Jihan fabricated the meeting with forged documents. The accusations create a stir in both Chinese and Western media as Jihan faces long jail time if the accusations are proven accurate. Early in the month, on June 5th, Bitmain Pte files for a trademark for “Bitmain Antrack”.
July 2020 – In the first half of the month, Jihan sends an internal letter to staff explaining that he returned to save Bitmain from a cash flow shortage caused by Zhan. He also details intentions to build an additional supply chain to address the issues caused by Zhan halting operations at the Shenzhen subsidiary. Jihan establishes a new entity on July 16th. The entity – Guiji Yanghang – is a subsidiary of the recently formed Beijing Guiyuan Dalu. It is believed that the purpose of the new entity is for Wu to build out the separate supply chain and manufacturing process for Antminer rigs. This development further complicates conditions for Bitmain customers. If it is true that Jihan is building out a distinct supply chain and manufacturing process, it is unknown which side will control the Antminer brand, shipping logistics, and key channels related to sales. Bitmain Pte successfully registers a trademark in mainland China and Hong Kong for “AntMiner”.
August 2020 – Bitmain announces through its official Antminer WeChat account that mining rigs due for delivery in June and July will be delayed until September and October. Given that orders for rigs are typically placed three months in advance, the delayed rigs would have been purchased by customers in March and April.
September 2020 – Chinese business records are updated on September 14th to show that Jihan Wu regains the legal representative position at Bitmain Beijing. Micree still acts as general manager at the firm. Wu confirms the update via a WeChat announcement on September 15th. The WeChat announcement recognizes the damage Bitmain has incurred:
“Since 2020, the management’s feud has damaged Bitmain’s market shares and its brand image. We have lost customers and employees were forced to take sides... Various breaking events and negative news even thwarted our plan to go public. Our equity option promised to employees almost became a useless piece of paper.”
October and November 2020 – Relative calm follows Jihan reclaiming the legal representative status. Bitcoin appreciates ~83% from the start of October to November, which spurs high demand from mining rigs. Mining profitability approaches pre-halving levels and demand for Bitcoin mining machines increases. Several large purchases are secured by large-scale mining facilities. Marathon Patent Group secures purchase agreements for 20,500 Antminer S19 Pro mining machines. By early December, Bitmain's International Marketing Director Nathaniel Yu confirms to CoinDesk that the firm is sold out of latest-generation mining rigs until May 2021.
December 2020 – On December 2nd, BitMain Technologies Holding files to cease its registration in the Cayman Islands as a non-Hong Kong entity. The filing suggests that a change in Bitmain's corporate structure and board may be imminent.
A Bitmain insider reports that Jihan and Micree have been negotiating a major split of the Bitmain business since September. On December 16th, Colin Wu – a former Bitmain PR manager – published a WeChat post that unverifiably touted how the business would split. The post noted that Micree used his Bitmain shares as collateral to borrow $600 million and buy out Jihan's ownership shares. According to the post, Jihan Wu will take control of BitDeer cloud mining, mining pool BTC.com, and overseas mining facilities. Micree will take control of the mining machine manufacturing which accounts for over 90% of Bitmain's revenue. Micree will also maintain control of Bitmain's artificial intelligence business, Antpool, and domestic mining facilities.
January 2021 – Jihan makes a public announcement confirming that Bitmain will split and shares the details of the development. Under the agreement, Jihan resigned as CEO and chairman. Micree borrowed $400 million from Bitmain and an additional $200 million from external sources. These funds were used to purchase almost half of the shares controlled by Bitsource, a group of founding shareholders that includes Jihan Wu. As part of the split, Bitdeer was spun off as a seperate entity, which also will control the mining facilities in the US and Norway. Jihan will act as chairman of Bitdeer and Matt Kong will be CEO. Antpool was also spun off as a separate entity and will be controlled by Micree. Under the agreement, the shares of Series B and Series B+ investors are tripled due to the valuation adjustments since the fundraising rounds. In the announcement, Jihan notes that the business model of Bitmain will be "highly streamlined" to make it easier to secure an IPO.
