The latest trends in the ASIC market
The Global ASIC Chip Market size is expected to reach $24.7 billion by 2025. Let’s review the latest trends among top players of this industry.
A brief look at the history of Bitcoin mining ASIC manufacturers, in particular the reported energy efficiency of the mining machines. An analysis of four main players in the market as of today.
The first ASIC-miner for Bitcoin, Avalon 1, went out of production four and a half years after the launch of the first cryptocurrency, in early 2013. But the first company, that announced ASIC-miner production was Butterfly Labs in June 2012. Butterfly Labs received orders from clients for tens of millions of dollars, but never fulfilled them. In late 2012 — early 2013, at conferences and meetings of the Bitcoin community one could often meet annoyed customers of Butterfly Labs, who were desperate to get their desired ASICs. In 2014, the company ceased to exist at the request of an American court. As a result of these events, the unconditional leadership in the market was taken over by Avalon in 2013. However, from the beginning of 2015 to 2018, the most energy-efficient equipment for mining was produced by Bitmain, so it took a dominant position in the market. At the peak of Bitmain dominance in 2017, when the market was rapidly growing, the company’s share was about 75%.
Today, the competition is growing and the strong products of new players such as MicroBT are gaining momentum and taking the lead from Bitmain. In 2019, the share of MicroBT is expected to be about 35%. However, Bitmain remains the number one player and the force to be reckoned with. In the long term, only 2–3 players in this market will survive. Let’s analyze the current situation in the industry of Bitcoin mining.
In November 2019, the company was the first in the industry to enter into an IPO in the U.S. (Nasdaq) and raised $90 million, although the initial target was $400 million. However, the euphoria did not last long. Canaan Creative placed its shares at the price of $9, and their value fell by 40% in December. In 2020, the price went below $2, where it is traded at the time of writing.
This was the occasion for a class action by shareholders who accused the company of manipulating information during the IPO. According to the results of 2019, Canaan reported a net loss of $ 148.6 million — about half the company’s capitalization at the time of writing. Canaan recorded most of the loss in the fourth quarter — $ 114.7 million. The amount is comparable to that raised at the IPO.
Even after the first half of 2019, analysts of BitMEX Research noted that Canaan has significantly increased its market share, displacing Bitmain. The company then announced further expansion and plans to equip the miners 5-nanometer chips in the first quarter of 2020.
Canaan introduced new devices in early June. Their characteristics were much worse than those of competitors. The power efficiency of the AvalonMiner 1146 Pro and AvalonMiner 1166 Pro is 52 W/TH and 47 W/TH, respectively, compared to 30–31 W/TH among market leaders.
According to the results of the first quarter of the year, Canaan recorded a net loss of $5.6 million. In a report for investors on financial results for the period, the company’s management said that the COVID-19 pandemic was partly to blame for weak sales, which negatively affected logistics. This impact continued in the second quarter, the document said.
The company now predicts the start of mass production of miners on 5-nanometer chips no earlier than next year. Leo Zhang, director of Iterative Capital Management, explained Canaan’s technological gap with Bitmain and MicroBT by the fact that the company is mostly focused not on the development of solutions for mining, but on the creation of AI chips. In his opinion, in the future, they may refuse to produce ASIC devices at all.
For the last three years, the company has maintained its market share at approximately the same level. According to BitMEX Research, in 2019 it fell from 5% to 4%. However, the best energy efficiency devices E11+ + and E12+ are inferior to the market leaders.
Ebang followed Canaan with an IPO on Nasdaq. The company filed a corresponding application with the U.S. Securities and Exchange Commission (SEC) in April this year. At that time, it planned to attract $100 million, but later raised the target to $125 million. In its application, Ebang reported a net loss of $42.4 million for 2019. The company’s revenue compared to 2018 fell almost 3 times — from $319 million to $109 million. In the first quarter of 2020, the net loss amounted to $2.5 million. The company’s management noted the negative impact of the coronavirus pandemic on business, especially on logistics.
Ebang also reported that it has completed the development of 8- and 7-nanometer ASIC chips and is ready for mass production of the first ones when “market conditions will be appropriate”. The company specified that it is currently focused on developing 5-nanometer chips and miners for Litecoin and Monero.
Ebang shares were listed on Nasdaq on July 26. The company placed 19.3 million securities at a price of $5.23 million for $101 million. The IPO result was closer to the initial bid of $100 million, and the market value of the company was $685 million. Immediately after the start of trading, Ebang shares under EBON ticker sank significantly, falling below $4. By the close of the session quotations fell by 18% of the IPO price to $4.28.
The company plans to study the application of the blockage in industries not related to digital assets — financial services and healthcare. All these steps are designed by the management to diversify the business and will lead to more stable financial indicators. Like Canaan, Ebang also has legal problems: at the end of 2019, a customer filed a lawsuit against the company for default on contractual obligations.
In 2020, Bitmain has regained its technological leadership, which it lost back in 2018. During this time, it has always had to catch up with competitors including Canaan, Ebang, MicroBT and even Innosilicon.
With the introduction of the Antminer S19, the S19 Pro with 30 W/TH took first place in energy efficiency, beating Whatsminer M30S++ from MicroBT (31 W/TH).
Bitmain was able to solve one problem, but the long-standing conflict between the company founders, which entered an acute phase in the fall of 2019, continues to adversely affect the company.
Information about the disagreement between Jihang Wu and Micree Zhan appeared in the media in November 2018. It was reported that the partners had divergent views on the direction of the company’s development — Wu’s dissatisfaction was caused by Zhan’s desire to develop developments in the field of AI.
Against the backdrop of a decline in the crypto market, Bitmain’s quarterly losses were in the hundreds of millions of dollars, and at the end of 2018 the company began a large-scale downsizing and closed a number of foreign offices. In March 2019, Bitmain announced the appointment of a new CEO. He was Haichao Wang, who had previously headed several divisions of the company. Jihan Wu and Micree Zhan remained in charge of strategic development.
According to the IPO prospectus filed for listing on the Hong Kong Stock Exchange (HKEX), Zhan holds a 36% stake in Bitmain through his holding company Cosmic Frontier Limited and Wu holds a 20.25% stake through Victory Courage Limited.
However, the conflict has not been resolved. On October 29, 2019, Jihan Wu, with the support of minority shareholders, returned to the position of CEO and removed Micree Zhan from all positions in the company. Wu confirmed that their conflict lasted for several years and escalated in late 2018. According to him, Zhan spoke out against staff reduction and the closure of some areas, despite the fact that Bitmain “thoughtlessly” spent a huge amount of money. Zhan proposed to increase investment in the AI division and expand the staff accordingly. Wu called this idea “crazy”.
Zhan, in response, promised to use legal instruments to return to the company and reminded that he remains the largest shareholder. He said he was disappointed with the betrayal of his partner, whom he considered “brother”. He really started to act actively:
- On December 9, Zhan called a shareholder meeting at which he tried to regain control of the company, but did not get the support of the majority;
- On December 16, the court froze Bitmain’s assets of 3.6 million yuan (about $514 thousand) in a subsidiary of Zhanhua Intelligent Technology. The media linked this to Zhan’s actions;
- In March, he filed a lawsuit against Bitmain and Zhanhua Intelligence Technologies in order to protect the majority vote in the company;
- On May 8, Zhan received a business license from the Beijing office of the Bureau of Industry and Trade as a legal representative. A group of attackers led by Bitmain representative Liao Liu, who was arrested by the police, picked up the papers directly at the facility;
- On May 22, the regulator suspended the business license of the mining giant;
- On June 3, Zhan returned control of the Bitmain office in Beijing;
- On June 10, the media reported that Zhan allegedly took control of a manufacturing unit in Shenzhen and is blocking deliveries of products;
- On June 22, ex-CEO issued a statement accusing Jihan Wu of forging shareholder signatures and illegally taking control of the company. Meanwhile, Wu’s supporters issued statements condemning Zhan’s attempts to regain control of the company and threatening to sue for legal representation on its behalf.
On June 24 it became known that the co-founders reached a compromise during negotiations. However, Jihan Wu made a statement about this, and his announcement was removed shortly after publication. Micree Zhan did not comment on the course of negotiations, but even from Wu’s message it follows that his opponents did not agree on some points of negotiations.
In December, after Zhan’s unsuccessful shareholder meeting, one of them said the company was “thriving and morale is very high” after Wu’s return. The company’s new CEO in the same month introduced three strategies to increase sales by reducing entry barriers to mining. Initiatives included paying for equipment in installments, a co-mining program and hedging risks through options.
At the end of February 2020, Bitmain published specifications for new Antminer S19 and S19 Pro miners, sales of which in China began in a month. With the new 7-nanometer chip of its own design, the devices bypassed all competitors in terms of efficiency.
According to the media, Bitmain’s revenue for the first four months of the year exceeded $300 million. In the report, the company noted that during this period, there was a sharp increase in the AI direction. Launched customer-oriented initiatives also played their role. Fighting to regain control of the company, Micree Zhan said that the sales of the AI division in 2020 could grow 10 times — from 100 million to 1 trillion yuan ($ 142 million).
In addition to the escalating conflict between the co-founders, Bitmain faced a quality problem with the Antminer S17 product line. According to Chinese miners, the failure rate of Antminer T17 and S17+ devices reaches 30%. Their sales began last year, and the miners were actively purchasing equipment in anticipation of halving. Claims for the quality of Bitmain equipment have also been made outside of China, accusing the company of supplying defective devices. Jihan Wu acknowledged the high level of failure and poor stability, especially for T17, blaming Zhan. He said that after the success of S9, Zhan and his personal assistant supervised the development of the next generation equipment.
Founded in 2016 by former Bitmain development director Yang Zuoxing, the company introduced its first product, Whatsminer M3 on 28-nanometer chips, in April 2017. According to the MicroBT website, the manufacturer sold 600,000 Whatsminer M20 miners with 8-nanometer chips in 2019, which accounted for 35% of the total Bitmain network hash rate as of December. In the same month, the Whatsminer M30 line of devices with advanced technology chips with the efficiency of 31 W/TH, which was unattainable for competitors at that time, entered the market.
The Company attracted investments in several rounds of financing, the amounts of which are not disclosed. The last one was closed in January 2019, its amount was $510 million.
MicroBT is positioning itself as a technology company focused on blockchain and AI. The firm emphasizes the high qualification and experience of its research and development staff — more than 40% of them have a doctoral or master’s degree from Beijing Tsinghua University, which is one of the nine elite universities in China (C9 League).
Company founder and CEO Yang Zuoxing left Bitmain after he was denied a share in the company. In 2017, Bitmain initiated a civil case against him, claiming that he had violated a patent granted by Bitmain for mining equipment. In October 2018, the MicroBT team cancelled the patent through an intellectual property court and the case was dismissed.
Bitmain continued to pursue an ex-employee allegedly directly related to the commercial success of the S7 and S9 Series products. In November 2019, the police detained Zuoxing for infringement of Bitmain’s intellectual property rights, then arrested him for misappropriation of 100 000 yuan (about $14 000). Probably all these problems were solved by the founder of MicroBT.
MicroBT’s market share position seems to be preferable:
- After the success of the Whatsminer M20, you can expect equally impressive sales of the Whatsminer M30;
- With the release of each generation of products, the company has lagged behind in terms of efficiency;
- The company has no visible problems with financing and corporate governance.
Bitmain responded with the new S19 product line. Its flagship Antminer S19 Pro is still the most effective Bitcoin miner. Bitmain remains the largest player on the market and has a number of advantages over its competitors:
- Strong production base;
- Well-established relationships with suppliers and participants in the supply chain;
- Diversified business, which includes mining farms and the two largest pools, as well as investments in other block projects.
Both co-founders of Bitmain were among the richest representatives of the blockchain industry in China. According to the Shanghai Hurun Research Institute, in 2019 Micree Zhan with a fortune of $4.2 billion was at the top of the ranking, and Jihan Wu was in third place with $2.4 billion.
There is a possibility that one of the future leaders is now hiding in the shadows. In the top ten most efficient Bitcoin miners, in addition to devices from Bitmain and MicroBT, there is Hummer Miner H9 Pro of little-known Chinese manufacturer Cynosure Technologies. The company calls itself a “talent team” in the field of high-performance chips and intelligent algorithm research for block and cloud computing.
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