Tracking US$24 billion Of Tokens ICO Makers Allocated To Themselves

Abstract: This is our third major piece on ICOs. In our first piece in September 2017 we focused on the interrelationships between ICO team members. In our second piece, in October 2018, we tracked the Ethereum balances in the ICO treasury accounts. In collaboration with TokenAnalyst, this piece focuses on the treasury balances of the ICO tokens themselves, on the Ethereum network. This report is based on tokens where the team controlled holding’s were worth an astonishing US$24.2 billion on issuance (in reality liquidity was too low for this value to be realized). Today this figure has fallen to around US$5 billion, with the difference primarily being caused by a fall in the market value of the tokens, alongside US$1.5 billion of transfers away from team address clusters (possibly disposals).

(Source: BitMEX Research)

(Note: A reminder of the various interconnections between ICO team members, from our September 2017 interactive graphic)

Team controlled token holdings (Own tokens) – summary data

US$ billion
Value of ICO coins allocated to token teams 21.5
Issuance to team post ICO 2.7
Total issuance to team controlled wallets
Coins leaving the team address cluster (Perhaps sales) (1.5)
Profits/(losses) due to token price changes (12.0)
Net impact of Noah (token burn) (4.4)
Net Impact of EOS (1.2)
Current team holdings 5.0

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Price data up to Jan 2019, token data up to Dec 2018, based on data for 108 tokens)

Of the US$24 billion worth of tokens ICO project teams issued to themselves, 54% of the value has been lost due to coin price reductions. The peak valuation of the team holdings of their own tokens, using the individual price peak for each coin, is over US$80 billion. This larger figure implies US$70 billion of “losses” from the peak. Although peak valuation highly is dubious due to a lack of liquidity and most of the tokens were granted to the teams essentially for nothing, therefore classifying these price movements as losses may not be appropriate. Unlike ICO investors, the teams did not have an offering price or initial investment. However, some trading activity occurred at these ridiculously high valuations, therefore we believe it’s still interesting to consider these figures, while bearing these caveats in mind.

Based on current illiquid spot prices, the ICO teams still appear to own around US$5 billion of their own tokens, money they essentially got from nothing, depending on ones view. At the same time the teams may have realized gains of US$1.5 billion by selling tokens, based on coins leaving team address clusters. Although this figure may also be an overestimate, as coins could have left the team address cluster for a variety of reasons.

Data Caveats & weaknesses in calculation methodology

  • The liquidity of many of these tokens is low and therefore the US Dollar values may be gross overestimates, this applies to both the initial allocation, current value and the value of any losses. In some cases, the value of tokens given to the team, for instance with projects such as Veritaseum or Noah, were almost comically large relative to the real trading volume in the coins. Therefore it can be considered unrealistic to value the team holdings based on the exchange price of the tokens.
  • The challenge and uncertainty involved in producing this dataset surrounds the allocation of the tokens to the team address cluster. TokenAnalyst conducted this allocation. The methodology used was imperfect and we have not dug into individual projects. The data was obtained by analysing the token smart contracts and transaction patterns on the Ethereum blockchain and applying machine learning type techniques to establish a team controlled address cluster for the team of each project. The data is therefore a probabilistic estimate and is likely to be inaccurate at the individual project level. However, the primary motivation for this report was to produce macro data about the team holdings of ICO tokens on Ethereum. Although this analysis has produced results which are far from perfect, we believe one can draw reasonable macro conclusions from the analysis.
  • As mentioned above, our analysis is based on reviewing smart contract data and transaction patterns, not documents and policies of individual projects. Therefore, it’s possible we included tokens as part of a team balance, although in reality they are held as part of another form of reserves, escrow or some other category, where it’s inaccurate to attribute the coins to the team’s own funds.
  • The data assumes the issuance date is the same date as when the first price data appeared on Coinmarketcap, this may not be a reliable assumption.

Summary data

Value of coins issued to team controlled address clusters (own tokens) – US$ million – Top 10

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Token data up to Dec 2018, data based on prices at the time(s) of issuance)

Loss in value of team controlled holding (own tokens) – US$ million – Top 10

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Price data up to Jan 2019, token data up to Dec 2018)

Proportional loss in value of coins in team controlled address clusters (own tokens) – Top 10

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Price data up to Jan 2019, token data up to Dec 2018)

Value of coins transferred out of team controlled address clusters (Own tokens) – US$ million – Top 10

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Price data up to Jan 2019, token data up to Dec 2018. Huobi and Qash are exchanges and the tokens appear to have been sent to their respective platforms. It is possible the above figures represents sales/”cashing out”, although there could be other reasons for the transfers)

Current value of coins in team controlled address clusters (Own tokens) – US$ million – Top 10

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Price data up to Jan 2019, token data up to Dec 2018)

The raw data – Team holdings of own tokens – US$ million

Token Value at ICO Post ICO issuance Transfers away from team cluster Loss in value Current value
VERI 4,762 0 (15) (3,196) 1,552
NOAH 4,478 0 (4,423) 55
KIN 980 0 (0) (703) 277
AGI 863 0 (27) (814) 22
POLY 842 0 (17) (727) 99
HT 643 0 (366) (29) 248
GNO 636 0 0 (533) 103
QASH 617 0 (177) (300) 140
MKR 596 0 (46) (445) 105
TEL 452 0 (8) (408) 36
ITC 334 0 (7) (323) 4
ZRX 333 0 (9) (155) 169
ZIP 266 0 0 (226) 41
BLZ 256 0 (32) (207) 17
GTO 241 0 (67) (157) 17
BNB 219 110 0 118 447
BTO 198 0 (28) (165) 5
ICX 160 0 (79) (67) 14
ETHOS 153 0 (15) (123) 16
TNT 152 0 (10) (133) 9
CENNZ 143 0 (6) (121) 15
AST 141 0 (24) (104) 13
KEY 132 0 (2) (124) 6
BIX 118 2 0 (85) 35
CVC 117 0 (1) (75) 41
FSN 100 0 (6) (75) 19
OCN 100 0 (31) (64) 5
DEW 95 0 (1) (87) 7
SRN 89 0 (15) (69) 4
MDS 88 0 (8) (75) 5
EDO 83 0 (11) (58) 15
ABT 76 0 0 (71) 5
WTC 69 0 (50) 17 37
INS 68 0 0 (66) 2
PPT 65 0 (55) (5) 5
IHT 65 0 (2) (58) 5
CPT 65 0 (0) (43) 21
SPHTX 64 0 0 (60) 4
DRGN 58 0 (47) (2) 8
MCO 54 0 (89) 72 37
XYO 54 0 (6) (23) 25
RCN 54 0 0 (48) 6
DPY 47 0 (23) (22) 2
THETA 45 0 0 (30) 16
MANA 41 0 (95) 127 73
R 40 0 0 35 75
APPC 35 0 (24) (9) 2
CMT 33 0 (1) (25) 8
FUEL 32 2 0 (29) 5
CREDO 31 0 (0) (6) 25
DMT 31 0 (17) (12) 2
POWR 30 166 0 (154) 42
LRC 30 8 0 (21) 17
WPR 26 0 0 (24) 2
AMB 24 0 0 (17) 7
RNT 22 0 (1) (15) 7
ENG 22 0 0 (12) 10
COB 22 0 (10) (5) 7
GTC 20 126 0 (141) 6
REN 19 0 (3) (13) 3
DENT 19 635 0 (564) 90
UTT 19 0 (0) (11) 8
AE 13 0 (19) 6 0
DATA 11 0 (3) (6) 3
BRD 10 17 0 (21) 7
SNGLS 8 0 0 (3) 6
LEND 6 0 (7) 3 2
RLC 6 0 (5) 2 3
PLR 6 3 0 (4) 5
HVN 5 0 (5) 0 1
CVT 5 11 0 (8) 9
LYM 5 0 (4) 0 2
SAN 5 0 (7) 5 4
GNT 4 0 (12) 31 23
KICK 3 2 0 (4) 1
DGD 2 0 (5) 5 3
EDG 2 0 (29) 28 1
ENJ 2 0 (0) 1 2
RHOC 1 14 0 (13) 1
ARN 0 6 0 (6) 1
ELF 0 45 0 (40) 6
PAY 0 142 0 (132) 11
DAI 0 1 0 0 1
HPB 0 134 0 (119) 15
CRPT 0 3 0 (2) 1
HOT 0 7 0 0 7
SALT 0 95 0 (92) 3
NAS 0 71 0 (50) 21
NGC 0 12 0 (11) 1
CPC 0 12 0 (9) 3
GVT 0 3 0 (2) 2
SNM 0 14 0 (11) 2
BTM 0 9 0 (1) 8
QRL 0 7 0 (6) 2
NULS 0 71 0 (52) 19
POE 0 58 0 (54) 4
TEN 0 29 0 (15) 13
MTL 0 188 0 (177) 11
WINGS 0 18 0 (15) 3
SPANK 0 106 0 (93) 13
OMG 0 195 0 (154) 41
STORJ 0 133 0 (85) 48
BAT 0 38 0 14 52
VIBE 0 10 0 (8) 2
IOST 0 218 0 (185) 34
Total 21,513 2,723 (14,805) (4,396) 5,035

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Price data up to Jan 2019, token data up to Dec 2018)

Conclusion & summary data

This analysis highlights the lack of standards and transparency in the ICO market, especially when it comes to the allocation of tokens to the founding team’s wallet. Teams were often able to mint, burn, buy, and sell (their own) tokens at will, without analysts being able to easily track what is occurring. We would often see tokens in exchange clusters, and it was hard to tell whether the token project “paid” the exchange to list tokens or the token project just transferred their treasury to the exchange to cash out.

To be fair, perhaps we could improve the analysis by spending more time reading the specific documentation of the individual projects and by speaking to the teams involved. This would have resulted in a more robust dataset.

But one thing about ICOs that many people often overlook, is that ICO teams often make profits in two ways from the issuance:

  1. Selling the newly issued tokens (often for Ethereum), and,
  2. Issuing themselves their own tokens.

Our October 2018 report focused on the former, while this report focuses on the latter. The summary table below combines the figures from both of our reports.

ICO team profits US$ billion
ICO process
Ethereum Raised 5.4
Own tokens issued to founding teams 24.2
Total raised 29.6
Changes in coin price
Ethereum profits/(losses) – Mostly realised 0.8
Own token profits/(losses) – Mostly unrealised (17.6)
Total profits/(losses) post issuance (16.8)
Total ICO team profits 12.8

(Source: BitMEX Research, TokenAnalyst, the Ethereum blockchain, Coinmarketcap (for token prices))
(Notes: Ethereum price data to October 2018, Own token price data to January 2019)

Although, as we have repeatedly explained, there are many inaccuracies and assumptions involved in producing the data. Based on our methodology, it appears as if ICO teams have profited by almost US$13 billion from this ICO process. In our view, this money was made incredibly easily, with very little work, accountability or transparency. Therefore, ICOs have proven to be an extremely attractive way for project founders to raise funds. The results for investors of course, have not been as attractive.

The ICO cycle now appears to be dying down to some extent and it’s much harder to raise funds than it was in late 2017. But with so much money made and lost, the events of 2017 and early 2018 are not likely to be quickly forgotten. Entrepreneurs will remember the success (and keep trying to raise money) while investors will remember the pain. A repeat of this cycle within a few years is therefore less likely than many may think.

Atomic Swaps and Distributed Exchanges: The Inadvertent Call Option

Abstract: In this piece, we look at a common problem facing both distributed exchanges and cross-chain atomic swaps: what we call the “inadvertent call option.” Non-custodial fully-distributed trading systems often inadvertently create an American-style call option, rather than the more simple desired operation of exchanging one asset for another. We review how this same issue applies to some specific distributed trading platforms like Bisq and particular cross-chain atomic swaps constructions. We then look at how IDEX solves this problem, but then requires users to trust the platform operator, to some extent, by removing some benefits of distributed exchanges. We conclude that despite the added complexity, in some circumstances it may be better to embrace the call option feature as a viable product, rather than ignoring or fighting it.


Alongside distributed stablecoins, distributed exchanges (DEXs) are often seen as one of the two holy grails within the cryptocurrency ecosystem. However, similar to distributed stablecoins, the challenges involved in DEXs are often underestimated. In this piece, we focus on one specific challenge with distributed exchange systems: instead of allowing simple exchange, these systems often inadvertently produce American-style call options.

The Theory Of The Inadvertent Call Option

When trading one cryptocurrency asset for another in any fully non-custodial system, one party must act first and the second party must follow. In theory, at some point, this second party then has optionality: – he or she can either follow through and complete the trade, or take no action and stop the trade. In the time interval between the first party taking the necessary action and the second party being required to act, if the price of the token the second actor is attempting to buy falls in value, or the price of the token he is selling increases in value, he could refuse to complete the trade. This means the following:

  1. The trader who acts first has written an American call option on the spread between the two assets.
  2. The trader who acts second has purchased an American call option on the spread between the two assets.

These exchanges can either happen atomically or as two separate transfers. Let’s consider Alice buying Bitcoin from Bob, using Litecoin.

Description Call option problem
Atomic trading

Either both the Litecoin transaction and Bitcoin transaction occur, or both transactions fail

(e.g. Cross-chain atomic swaps).

One party must act first and then the second party can decide to execute both trades or not. This decision can be influenced by price changes in any of the two assets in the intervening period. This provides the second party to act with optionality.
Non-atomic trading

It is possible for one of the transactions in the trade to succeed and the other to fail. In this case, typically a quasi-custodial mechanism such as multi-signature escrow, is required to prevent cheating for at least one side of the trade

(e.g. Bisq-type platforms).

One party must act first and then the second party can decide to execute his part of the transfer or not. Failing to execute the second transfer could result in either:

  • The second party successfully stealing funds from the first party
  • The third party escrow agent reversing the first transaction

Either way, the second party has optionality.

As the table above illustrates, whether the trading is atomic or not, the same optionality principle applies.

One may think this is an insignificant issue, as the time periods can be short or the option value may be low; however, this is typically not the case: the option period is often around 24 hours and cryptocurrency prices can be very volatile. This high volatility is typically the reason traders wish to exchange the tokens in the first place. Therefore, the option value can be significant and impact trading.

It may be possible to mitigate or solve this problem by using more steps involving more deposits, but we have not yet observed a system achieving this. The other way to mitigate the problem is via the reputation of individual traders and a distributed web of trust-based systems, with traders revealing a form of identity. Traders can then lose reputation if they cancel trades based on price volatility. However, this may greatly increase the complexity of the systems, as functioning sybil attack resistant distributed reputation systems are also challenging to construct.

Below we examine three differently constructed distributed exchange type systems (or quasi DEXs) and explain how the call option problem arises.

Case Studies


Summary table

Type Non-atomic
Optionality period 24 hours (up to 8 days)
Escrow Multisignature escrow for the trader selling Bitcoin only

Bisq (previously known as Bitsquare) is a peer-to-peer application, which enables one to buy and sell cryptocurrency with fiat money, as well as trade between crypto-tokens. Bisq is essentially a DEX, as traders connect to each other over a peer-to-peer network and transact with each other directly.

Bisq Daily Trading Volume (USD)

(Source: Coinmarketcap)

Screenshot from the Bisq platform

(Source: BitMEX Research)

Below we explain some examples of potential trading activity on Bisq and describe the resulting options.

Example 1: Acquiring Bitcoin with USD on Bisq

Alice wishes to purchase 1 BTC from Bob, using U.S. dollars:

  • Step 1: Bob places 1 BTC in a 2 of 3 multisignature account. The three signatures belong to Bob, Alice, and a third-party arbitrator. This is Bob’s offer, which includes a price (e.g. US$3,800 per BTC).
  • Step 2 – Alice can accept Bob’s offer by paying a small refundable deposit into another multisignature account. The fee is set by Bob (e.g. 0.01 BTC).
  • Step 3 – Alice has 24 hours to conduct a bank wire transfer, paying US$3,800 into Bob’s account. If there is no dispute and the wire transfer occurs, Alice receives the 1 BTC and her deposit back. If no wire transfer occurs, Alice loses the deposit and the 1 BTC is returned back to Bob. Any dispute is mediated by the third-party arbitrator.

The above represents Alice buying Bitcoin; however, when considering the economic incentives involved, since Alice can back out of the trade with limited consequences, one could consider that, after step 2, she has acquired the following American-style call option:

Call option details
  • Underlying: Bitcoin
  • Quantity: 1
  • Strike: $3,800
  • Time to expiry: 24 hours
  • Premium: 0.01 BTC

Therefore, when Bob determines the value of the deposit Alice is required to pay, in theory he should consider Bitcoin’s volatility and use options pricing systems to ensure Alice is unable to acquire the option for a cheap price. Based on the prices currently available on Bisq, it appears many of these options are undervalued.

Example 2: Acquiring Bitcoin with Monero on Bisq

Alice wishes to purchase 1 BTC from Bob, using Monero (XMR):

  • Step 1 – Bob places 1 BTC in a 2 of 3 multisignature account. The three signatures belong to Bob, Alice, and an arbitrator. This is Bob’s offer, which includes a price (e.g. 80 XMR per BTC).
  • Step 2 – Alice  can accept Bob’s offer by paying a small refundable deposit and a fee set by Bob (e.g. 0.01 BTC).
  • Step 3 – Alice has 24 hours to do an on-chain Monero transfer. If there is no dispute and the transfer occurs, Alice receives the 1 BTC and her deposit back. If no wire transfer occurs, Alice loses the deposit and the 1 BTC is returned back to Bob. Any dispute is mediated by the arbitrator.

Again, the above example may be considered as Alice buying Bitcoin; however, when considering the incentives, since Alice can back out of the trade with limited consequences, one could consider that she has acquired the following American-style call option:

Call option details
  • Underlying: Bitcoin
  • Quantity: 1
  • Strike: 80 XMR
  • Time to expiry: 24 hours
  • Premium: 0.01 BTC

If one is trying to capture the benefits of buying a call option with a low premium, this Monero trade may be more beneficial than the U.S. dollar version, since the Monero price is more volatile, and therefore the value of the option is higher. Since the Monero price is more volatile than Bitcoin, it may be more economically correct to conclude that Alice has acquired the following put option, rather than a call option.

Put option details
  • Underlying: Monero
  • Quantity: 80
  • Strike: 0.013 BTC
  • Time to expiry: 24 hours
  • Premium: 0.01 BTC

As a trader, if one wants to take advantage of this structure, one could purchase these Monero puts for a low premium and then hedge the exposure by going long Monero on a centralised platform. However, Bisq has small position limits and therefore the size of the profit-making opportunity is limited.

Although it may make marketing the platform more challenging, it might make Bisq more robust to rebrand these trades as options and encourage sellers of Bitcoin to set the deposit price such that it’s consistent with the premium payment for the equivalent option based on the price volatility of the assets involved, for example by using the Black–Scholes model.

Cross-Chain Atomic Swaps

Summary table

Type Atomic
Optionality period 24 hours (or whatever the parties set as the lock time period)
Escrow None

We believe cross-chain atomic swaps were first described by TierNolan on the Bitcointalk forum in May 2013. Cross-chain atomic swaps allow users to exchange one asset for another atomically, such that the entire process either succeeds or fails. This allows for no risk for either party losing out by only one of the two transfers completing.

The following illustration describes the on-chain atomic swap process.  It is based on a swap between Alice and Bob, with Alice exchanging 1 Bitcoin for 100 Litecoin belonging to Bob.

Cross-chain Atomic Swap Construction

# Actor Description
1 Alice Alice picks a random number X.
2 Alice Alice creates a transaction sending 1 BTC to Bob.

Transaction 1

The transaction can be redeemed when either:

  1. Bob signs it and X is known, such that the hash of X is a necessary value.
  2. Both Alice and Bob sign it.
3 Alice Alice creates and signs a transaction sending the 1 BTC output of transaction 1, back to herself.

Transaction 2

The transaction is time locked for 24 hours.

4 Alice Alice sends transaction 2 to Bob.
5 Bob Bob signs transaction 2 and returns it to Alice.
6 Alice Transaction 1 is broadcast to the Bitcoin network.

7 Bob Bob creates a Litecoin transaction sending 100 LTC to Alice.

Transaction 3

The transaction can be redeemed when either:

  1. Alice signs it and X is revealed, such that the hash of X is the necessary value.
  2. Both Alice and Bob sign it.
8 Bob Bob creates and signs a transaction, sending the 100 LTC output of transaction 3 back to himself.

Transaction 4

The transaction is time locked for 24 hours.

9 Bob Bob sends transaction 4 to Alice.
10 Alice Alice signs transaction 4 and returns it to Bob.
11 Bob Transaction 3 is broadcast to the Litecoin network.

At this point, Alice has the optionality.
If the LTC/BTC price ratio increases, she could continue the swap process. Or, if the LTC/BTC price ratio falls, Alice can end the process here.

Call option details
  • Underlying: Litecoin
  • Quantity: 100
  • Strike: 0.01 BTC
  • Time to expiry: 24 hours
  • Premium: 0
  • Type: American
12 Alice Alice spends the output of transaction 3 to herself, revealing X. Alice now has 100 LTC.

13 Bob Bob spends the output of transaction 1 to himself, using the X Alice provided above. Bob now has 1 BTC.

(Source: BitMEX Research)

As the table illustrates, although one is attempting to structure an atomic swap, similar to Bisq, it has inadvertently resulted in an American-style call option. The same issue appears to apply to either multi-currency routing via the lightning network or off-chain lightning-based cross-chain atomic swaps, during the construction of the channels. It could be possible to solve these issues with more steps and a longer series of deposits, although this added complexity may make implementation more challenging. Just as for Bisq above, it may be more appropriate for cross-chain atomic swap developers to embrace the call options and make it the product, rather than to try to brush this problem under the carpet or solve it with added complexity.


Summary table

Type Atomic
Optionality period n/a
Escrow Partial escrow for both sides of the trade with IDEX, with a sunset clause

IDEX is an exchange platform using the Ethereum network. Traders deposit funds into an Ethereum smart contract, where the signature of both the traders and the IDEX platform is required to submit orders, execute trades, or make payments.

After a certain time horizon, users can withdraw funds from the smart contract without a signature from IDEX, which protects user deposits in the event that IDEX disappears. Order submission, order cancellation, and order matching is conducted off-chain on the IDEX servers, to allow for a fast and seamless user experience. The events are then submitted in sequence to the Ethereum blockchain and are only valid with a valid signature from the users. Therefore, IDEX is unable to steal user funds or conduct trades without user authorisation.

According to Dex.Watch, IDEX is the global number one Ethereum-based DEX, with an approximate market share of 50%. IDEX-type platforms are in many ways more advanced than the exchanges above as they can solve the call option problem by having both party’s funds partially held in escrow during the trading period.

IDEX Daily Trading Volume ( USD)


Although IDEX cannot steal user funds or conduct trades without authorisation, the order of events is determined centrally by IDEX. IDEX could fail to execute an order in a timely manner as well as front run orders or fail to execute an order cancellation in a timely manner. Therefore, while users are protected from some risks common in centralised exchanges, in practise they are still exposed to many of the risks most often talked about with respect to typical centralised exchanges. However, we still consider IDEX type platforms to potentially be a significant improvement compared to the fully centralised alternatives.  IDEX also has other limitations such as one can only trade Ethereum-based assets and the platform is eventually constrained by Ethereum network capacity.


In some ways Bisq’s model is more ambitious than IDEX and cross-chain atomic swaps. IDEX limits itself to tokens that exist on the Ethereum network while atomic swaps only deal with some cryptocurrencies. In contrast, Bisq attempts to handle fiat currencies such as the U.S. dollar. While solving the call option problem may be possible using Ethereum smart contracts or more complex lightning network constructions when, fiat currency is involved, it may be impossible to solve.

Of course atomic swaps and an IDEX type platform could work with US dollars if there is a working distributed U.S. dollar stablecoin. This illustrates how the two holy grails, distributed stablecoins and distributed exchanges, are interrelated. In a catch-22 type situation, each can only function robustly if the other exists.

Without a distributed stablecoin, in our view, when trading fiat currency for cryptocurrency through distributed systems, the use of call options could be inevitable. Bisq is potentially a useful distributed onramp into the cryptocurrency ecosystem; however, rather than trying to solve the call option problem, perhaps Bisq should embrace it. Maybe an effective onramp into the cryptocurrency ecosystem could be via American-style call options. While this may not be easy, it may be the only way to structure a robust highly censorship-resistant way in.


The Price Crash & The Impact On Miners

Abstract: Cryptocurrency prices have fallen significantly in the past few weeks. In this note, we analyse the impact this price decline may have on the mining industry. The Bitcoin hashrate has fallen around 31% since the start of November 2018, equivalent to around 1.3 million Bitmain S9 machines. We conclude that many miners are struggling; however, we point out that not all miners have the same costs and that it’s the higher cost miners who switch off their machines first, as the price declines.



Since the start of November 2018, the Bitcoin price is down around 45%, while in the same period the amount of mining power on the Bitcoin network has fallen by around 31%. According to our estimates, this represents around 1.3 million Bitmain S9 miners being switched off. The mining industry may therefore be under considerable stress right now, due to the falling prices of cryptocurrency.

The prices have so far caused two large downward difficulty adjustments to Bitcoin, 7.4% and 15.1%, on 16th November and 3rd December, respectively. The 7.4% adjustment was the largest since January 2013 and the 15.1% adjustment was the largest since October 2011. The charts below are based on the daily chainwork and therefore reflect changes in network difficulty.

Bitcoin Daily Work Compared to the Falling Price

(Source: BitMEX Research, Poloniex)

Daily Mining Revenue and Cost

As the chart below illustrates, Bitcoin mining industry revenue has fallen from around $13 million per day at the start of November to around $6 million per day, at the start of December. This drop in incentives was even larger than the fall in the Bitcoin price, due to a delay in the way difficulty adjusts. In the six-day period ending 3rd December, 21.8% fewer blocks than the expected 144 per day were found, as miners left the network before the difficulty adjusted, and as a result, fewer blocks were found. Therefore in the short term, there was a 21.8% fall in mining incentives on top of the impact of the declining price.

Bitcoin Daily Mining Revenue and Expected Electricity Spend – US$m

(Source: BitMEX Research, Poloniex)

(Notes: Assumes an electricity cost of US$0.05 per KWH, assumes advertised Bitmain S9 specification)


Bitcoin Cash ABC Daily Mining Revenue and Expected Electricity Spend – US$m

(Source: BitMEX Research, Polonies)

(Notes: Assumes an electricity cost of US$0.05 per KWH, assumes advertised Bitmain S9 specification)


Ethereum Daily Mining Revenue and Expected Electricity Spend – US$m

(Source: BitMEX Research, Polonies)

(Notes: Assumes an electricity cost of US$0.05 per KWH, assumes 32Mh/s at 200W)

Miner Profit Margins

The chart below shows that prior to the recent crash, the industry was making gross profit margins of around 50% (these figures assume electricity is the only cost included in gross profits), while after the price crash, this fell to around 30% for Bitcoin and 15% for Ethereum.

Miner Profit Margin

(Source: BitMEX Research, Poloniex for prices)

Ethereum Mining Profitability

In the period, the Ethereum hashrate has only fallen by 20%, much lower than Bitcoin, (representing around 1.5 million high-end graphics cards), while the price decline has been more significant than Bitcoin, at 54%. Therefore, gross profit margins have declined even more sharply for Ethereum, but it is not clear exactly why this is the case.

There are a few potential reasons. It could be that Ethereum miners are more hobbyist minded and less profit focused, or Ethereum miners could have started from a higher gross profit margin position than Bitcoin, so they are less inclined to monitor the network and switch the miners off when necessary. As the data shows, Ethereum miner gross profit margins now appear significantly lower than Bitcoin, falling to 15% in the last few days, so this could change (Note: This analysis only included electricity costs, when including other costs, mining may be a loss making operation).

Bitcoin Cash ABC Mining Profit Margins

As the above chart shows, the Bitcoin Cash ABC gross profit margin went negative during the split into two coins, Bitcoin Cash ABC and Bitcoin Cash SV. The two camps mined uneconomically in a race to have the most work chain. Ten days after the split, on 25th November, the profitability of mining Bitcoin Cash ABC rapidly climbed up to around the same levels as Bitcoin. This appeared to indicate the end of the “hashwar,” which proved to be almost completely pointless, as the war ending had no clear noticeable impact on either the coins or their value.

As the latest data in the below table shows, the two sides are getting closer again with respect to total work since the split and its possible uneconomic mining resumes.

Bitcoin Cash ABC Bitcoin Cash SV
Log2(PoW) 87.753365 87.747401
Blocks                          560,091                              560,081
Cumulative total since the split
Log2(PoW) 82.189 81.875
Blocks                                   3,325                                   3,315
Mining electricity spend $7,939,318 $6,389,264
Coin price (Poloniex) $108 $94
Estimated mining gross profit/(loss) ($3,450,568) ($2,494,139)
Gross profit margin (76.9%) (64.0%)
Assume leased hashrate
Estimated leasing costs $14,608,345 $11,756,245
Estimated mining gross profit/(loss) ($10,119,595) ($7,861,120)

(Source: BitMEX Research, Poloniex for prices)

Flaws in the Above Analysis

The above gross profit margin charts do not show a complete picture. While the revenue figures are likely to be accurate, the only cost included is electricity. Obviously miners have other costs, such as the capital investment in the machinery as well as maintenance costs and building costs. Therefore, although the charts below show that the industry is highly profitable when only considering electricity costs, given other costs, the recent price crash is likely to have sent almost all the miners into the red. This indicates that miners invested too much in equipment and have achieved large negative ROIs.

Electricity Cost is Not Uniform

Another crucial point not reflected in the above analysis is the variance in electricity rates. The charts above assume a flat cost of $0.05 cent per KwH; however, not all miners have the same electricity costs and there will be a distribution.

As we mentioned above, 31% of the hashrate was shutdown in the period, logically those with the highest electricity costs should turn off their machines first. Therefore the average electricity cost on the network should have fallen considerably in the past month.

The below chart is an illustration of the above, it assumes that electricity costs are normally distributed with a standard deviation of $0.01 per KwH and that higher-cost miners switch their machines off first. Although this assumption is likely to be highly inaccurate and energy prices will not be normally distributed across the mining industry, from a macro level it illustrates a point and it may be more accurate than the above chart.

According to this analysis, average Bitcoin mining gross margins have only declined from around 50% to 40%, implying a far more healthy situation for the remaining miners.

Bitcoin Mining Gross Profit Margin (Illustrative)

(Source: BitMEX Research, Poloniex for prices)

When evaluating the potential negative impact of price declines on Bitcoin, analysts sometimes forget that not all miners have the same costs. It is these cost variances that should ensure the network continues to function smoothly despite large sudden price declines and allows the difficulty to adjust.

What Caused the Price Crash?

There has been considerable speculation around the causes of the price crash, with some saying miners sold Bitcoin in order to finance a costly hashwar in Bitcoin Cash. The cryptocurrency intelligence monitoring platform Boltzmann flagged to us that their platform had detected unusually large miner selling of Bitcoin on 12th November, a few days before the Bitcoin Cash split.

Boltzmann detected that net Bitcoin sales from miners were “17.5 standard deviations below [the] 3-month trailing average.” On further analysis, it appears these miners may have been a member of Slushpool.

Bitcoin miner net flow & price

(Source: Boltzmann, 12 hour aggregation of miner net flow)

Conclusion and Price Commentary

While it may be true that mining pools selling Bitcoin to fund losses in the Bitcoin Cash hashwar may have been a catalyst for the reduction in the price, we think it’s easy to overestimate the impact of this. We are in a bear market and prices are falling regardless of the news or investment flows.

Furthermore, in a bear market prices seem to fall on non-news or bad news and ignore good news, while in a bull market the reverse appears true. We think it’s likely that prices would have been weak regardless of any miner selling prior to the Bitcoin Cash split. For cryptocurrency, trader sentiment is king.

This is likely to be a very tough time for the mining industry. However, for miners with lower costs, our basic analysis indicates that the situation may be better than people expect. If the miners acquired their equipment from Bitmain at below-cost prices, they could still be in the green, even when including depreciation and other administrative expenses.

Bitcoin Cash ABC’s rolling 10 block checkpoints

Abstract: We evaluate Bitcoin Cash ABC’s new rolling 10 block checkpoint system. The new system does defend against “deep” hostile reorgs; however, it increases the risk of consensus chain splits and provides new opportunities for a would-be attacking miner. Another tradeoff is that the change increases the damage hostile miners can do to the network, but it reduces the potential reward for such behaviour. It is not clear at this point if this change is a net benefit, although it is a fundamental change to the system and it may therefore be better to spend more time assessing the dynamics involved before the network adopts this technology.


Bitcoin Cash ABC added a new rolling checkpoint system in software version ABC 0.18.5, which was released on 21st November 2018. Essentially, the new mechanism finalizes a block once it has received 10 confirmations, which prevents large blockchain reorgs. Therefore even if an alternative chain has more proof of work, if it conflicts with a checkpoint, the node will not switch over to the most work chain.

This feature may have been added as a defence against potential attackers including from supporters of the rival Bitcoin Cash SV chain, who have indicated they may wish to attack Bitcoin Cash ABC.

Security Analysis of the New Checkpointing Mechanism

The new rolling checkpoint mechanism includes a trade-off:

  • The risk of a deep reorg is reduced.
  • The risk of a consensus chainsplit is increased.

Network Risk Analysis of the New Checkpoint System

Latency issues Attack scenario
Reorg risk

No change

It it unlikely that latency problems will cause nodes to be out of sync with each other by 10 blocks, therefore, this is largely a non-issue, in our view. The new checkpointing system is therefore not likely to cause problems here. Although with a block size of up to 32MB, there could be some latency issues in a small number of circumstances and it is possible nodes could be out of sync by 10 blocks.

The checkpoint doesn’t seem to solve any issues to do with latency. If latency issues cause a 10 block reorg, the user may want to follow the most work chain. Therefore we do not think there is any benefit here.

Risk reduced

The risk of a deep hostile reorg is now reduced or limited to 10 blocks.

Consensus split

New small risk introduced

In the unlikely scenario that poor network connectivity causes nodes to be out of sync with each other by 10 blocks or more, the conflicting checkpoints could cause a consensus split resulting in two or more coins.

New risk introduced

Although the reorg risk is now reduced, the hostile miner now has a new attack vector. The attacker can attempt to mine a 10 block long (or longer) chain in secret and then publish the chain at a time designed to cause conflicting checkpoints on the network, causing a chain split.

Attacking Miner: An Alternative Option to a Reorg

As indicated above, if a hostile miner is producing a shadow chain, once this diverges from the “honest” chain by more than 10 blocks, it is essentially useless as it cannot reorg the honest chain, even if it has more work. Therefore the attacker might as well give up and stop extending the shadow chain.

However, this also means that as soon as the 10th block since the split has been produced on the “honest chain,” the attacker might as well publish the shadow chain at this point, depending on the attacker’s objectives. (i.e. release the shadow chain as soon as the attacker receives the block in red indicated in the below diagram.) This could then cause a consensus chain split, with some nodes having received the red block first and some receiving the shadow chain first, resulting in conflicting checkpoints.

(Source: BitMEX Research)

This attack may cause a consensus chain split, which could be just as damaging to the network as continuing on to do a hostile reorg. It is also cheaper than continuing on to do a deep reorg, since the hostile miner can stop earlier. Therefore it is not clear to us why this new checkpointing defence is a material improvement. Although the risks in this section are unlikely to materialise (and could require the attacker to have a majority of the hashrate), they seem at least as likely to occur as the problem the new checkpointing system is trying to mitigate against.

Advantages of the Checkpointing System

  • Although the new checkpointing mechanism may have a limited impact on security within a 10 block window, when looking back more deeply from the current chain tip, security may be increased over longer timeframes. This may be very useful to some exchanges or merchants who can now wait for more than 10 blocks before crediting a user account and achieve a higher level of assurance. However, a key focus of Bitcoin Cash is to increase transaction speeds, so this benefit may not be desirable for the Bitcoin Cash community.
  • Although a new attack vector is opened up by this mechanism, providing a new way for hostile miners to instigate a consensus split as we explained above, the incentive to do this is less clear than for a “normal” deep reorg attack. A normal reorg attack can be used to initiate a double spend against an exchange, whereby the attacker could profit. While it is possible to also attempt a double spend attack using this new chain split-related attack vector, the outcome is less clear, as it is not obvious which side (if any) will be the winner or which chain an individual exchange may follow. Therefore, although this attack is potentially more devastating on the network, the incentives for it are less obvious. We view this as a significant positive.

Other issues

Centralisation and More Developer Power

Another common criticism of checkpoints is that it gives developers more power and increases centralisation since developers normally manually insert the checkpoints when they release new versions of the software (like Bitcoin used to have). However in our view, this does not apply in this case as the checkpoints are automatically generated by the node software and not manually generated by the development team. Therefore this a non-issue.

Long Range Attack and the Initial Sync

As Eric Wall explained on Twitter, the new checkpoint mechanism opens up the ability to sybil attack nodes not on the latest chaintip. For example, nodes still in the initial sync or nodes related to users who temporarily shut down their nodes for several days. An attacker needs to launch his own relay nodes and generate a new 10 block long chain at any point in the past.

This lower work chain can then be broadcast to nodes (including the specific targeting of nodes not at the current tip), potentially causing these nodes to conduct the checkpoint prematurely, on an alternative chain. Not only does this leave these nodes on a different chain, but this chain is under the control of the attacker. This seems to be a significant flaw of the checkpointing system.

Satoshi’s “original vision” appears to imply that the ability of nodes to be switched off and then verify what happened when it was gone is potentially important:

Nodes can leave and rejoin the network at will, accepting the proof-of-work chain as proof of what happened while they were gone.
(Source: Bitcoin Whitepaper)

To some extent this Bitcoin Cash ABC upgrade abandons that philosophy, and requires nodes to be online 24×7.


The new Bitcoin Cash ABC checkpointing system is a fundamental change to the core network and consensus dynamics, resulting in a number of trade-offs. These changes may not have been adequately explored before the upgrade. Although we do not think it is likely such a change will result in an immediate crisis, it’s not likely to prevent one either.

Overall Summary of the Checkpointing System’s Impact


  • Reduces the incentive for a miner to attack the chain
  • Provides more assurances for merchants and exchanges for transactions with over 10 confirmations


  • Increases the ability of a miner to instigate a devastating attack on the network
  • Introduces new attack vectors on nodes which are still syncing to the main chain


Detailed Report Into The Cryptocurrency Exchange Industry (From CryptoCompare)

Abstract: We present an in depth report into the cryptocurrency exchange ecosystem. The market is broken down by almost all the possible characteristics (Exchange type, exchange region and trading pairs). The robustness and authenticity of exchanges are evaluated  using metrics such as web traffic, average trade sizes, order book depth, security polices and price reliability. The report was produced by CryptoCompare and uses the CryptoCompare’s Aggregate Pricing Index (the CCCAGG), for much of the analysis.


(Note: Current CCCAGG Constituent Exchanges, Sized by 24H Volume)


Please click here to download a PDF version of CryptoCompare’s report


Executive Summary

Major Exchange News in October

  • Bitstamp was acquired by Belgium-based Investment Firm NXMH for ~400 million USD according to reports.
  • Cryptoassets on Gemini are now fully insured with Aon.
  • Coinbase adds 0x to its trading platform as well as USDC after announcing its collaboration with Circle on the CENTRE Consortium.
  • Korean exchange Bithumb starts a new DEX, while Huobi and OKEX list stablecoins GUSD, TUSD, PAX and USDC.
  • Chainalysis will help Binance comply with anti-money laundering (AML) regulations around the globe, and
  • Coinfloor becomes the first exchange to obtain a Gibraltar license.

Exchange Market Segmentation

Spot volumes constitute less than three quarters of total market volumes on average (less than 7 billion USD) compared to futures volumes (3.2 billion USD). BitMEX and BitflyerFX average more than one quarter of total volumes while traditional exchanges such as CME and CBOE constitute just under 1%.

Within total spot volumes, exchanges with taker fees represent approximately 90% of the exchange spot market volumes, while transaction-fee based and no-fee exchanges represent the remaining 10%.

Exchanges that offer fiat to crypto pairs constitute just under a quarter of spot market volumes on average (~2 billion USD) while exchanges that offer only crypto to crypto pairs constitute approximately three quarters (~4.7 billion USD). In terms of exchange count however, approximately half of all exchanges offer fiat to crypto pairs.

Transaction-Fee Mining Volumes

The top trans-fee mining exchange by average 24h volume was EXX (160 million USD), followed by Coinex (114 million USD) and Coinbene (113 million USD). The total average 24h-volume produced by trans-fee mining associated exchanges on CryptoCompare totals just over 550 million USD. This constitutes approximately 10% of total exchange volume over the last 30 days.

Decentralized Exchanges

The total average 24h-volume produced by the top 5 decentralized exchanges on CryptoCompare totals just under 2.4 million USD. This constitutes just 0.4% of total exchange volume. The top 3 on CryptoCompare by 24h volume include Waves Dex, IDEX and Dex.

Volume, Pairs and Coins

Binance remains the top exchange in terms of 24h volume with an average of 977 million USD. This is followed by OKEX (405 million USD) and Bitfinex (368 million USD). Yobit offers the highest number of pairs at 7,032, followed by Cryptopia (4,321) and CCEX (2,140).

Bitcoin to Fiat Volumes

The US Dollar represented half of BTC fiat trading on average over the past 30 days, followed by JPY (21%) and KRW (16%). Bitcoin trading to Korean Won (KRW) increased sharply after the 7th of October. The pair previously represented a tenth of bitcoin trading among the top 5 fiats on average. Between the 7th and 15th of October it represented a third on average, a 230% increase stemming from Korean exchange Bithumb’s spike in trading volumes.

Country Analysis

Maltese-registered exchanges produce the highest total daily volume at just under 1.4 billion USD, followed by those based legally in South-Korea (~840 million USD) and Hong Kong (~560 million USD). Among the top 10 volume-producing countries, the highest number of large exchanges (with significant volume) are based legally in the USA, the UK and Hong Kong. Binance and OKEX represent the vast majority of Malta’s volumes, while Bithumb and Upbit dominate in South Korea.

Trade Data Analysis

CoinEx, a well-known trans-fee mining exchange, has a significantly higher trade frequency and lower trade size than other exchanges in the top 25. This may point to algorithmic trading, given its almost 176 thousand trades a day at an average trade size of 125 USD. In contrast, Bithumb and HuobiPro had an average trade size of just under 3,000 and 1,500 USD respectively and significantly lower trades per day (12-18 thousand).

Web User Analysis

IDAX and CoinBene appear to have lower average daily visitors compared to similarly sized exchanges by daily volume. Binance has the highest average daily visitor count, in line with its high trading volumes. Meanwhile, exchanges such as Coinbase, and Bittrex have significantly greater numbers of daily visitors than other exchanges with similar daily volumes. ZB and EXX attract significantly lower daily visitors than similarly-sized exchanges.

Order Book Analysis

ItBit, Kraken and Bitstamp have relatively more stable markets compared to exchanges such as CoinEx, ZB and Coinbene. These exchanges appear significantly less stable given their relatively low average order book depth values over the specified period of analysis.

Exchange Security

Out of the top 100 exchanges by 24h volume, only 86% have both a public privacy policy and a terms & conditions page. A third of top exchanges store the vast majority of users’ funds in cold wallets. Exchanges itBit, Coinfloor, Bitfinex and Coinbase are among those that store the highest proportion of users’ funds offline. As a proportion of the top 100 exchanges, 11% have been hacked in the past.


Just under half of top exchanges impose strict KYC requirements, while more than a quarter do not require KYC.

Total Exchange Volumes and Market Segmentation

This section aims to provide a macro view of the cryptocurrency exchange market as a whole. An area of interest is the proportion of spot trading vs futures trading historically. We will also assess the relative proportion of exchange volumes that represent exchanges that charge fees, as well as those that implement models with no-fees or trans-fee mining. Finally, we will take a look at exchange volumes that represent crypto-crypto exchanges versus those that represent fiat-crypto exchanges.

Historical Spot vs Futures Volumes

Spot volumes constitute three quarters of total market volumes on average.

Total spot volume averaged less than 7 billion USD, while futures volume averaged over 3.2 billion USD over the period of analysis.

Futures exchanges such as BitMEX (XBT to USD perpetual futures) and BitflyerFX (BTC to JPY futures) average just under a quarter of total cryptocurrency market volumes. Traditional exchanges such as CME and CBOE trading bitcoin futures, only constitute a very small proportion of the total market at just under 1% on average.

Historical BTC to USD Futures Volumes

BitMEX’s Perpetual Bitcoin to USD Futures volumes continue to dominate the Bitcoin to USD futures market

When compared to CME’s and CBOE’s futures volumes, BitMEX has represented an average of just over 90% of the market over the last month.

Historical Spot Volumes Segmented by Predominant Fee Type

Exchanges with taker fees represent approximately 90% of the exchange spot market volumes.

On the other hand, exchanges that implement transaction-fee mining represent just over 9% of the total spot market, while those that offer no-fee spot trading represent just under 1% of the market.

Historical Crypto to Crypto versus Fiat to Crypto Exchange Spot Volumes

Exchanges that offer fiat to crypto pairs constitute just under a quarter of spot market volumes on average.

Adjusted Historical Spot Volumes

The cryptocurrency exchange market trades an average of 5.26 billion USD in adjusted volumes over the period of analysis.

Adjusted spot volumes exclude all exchanges that operate trans-fee mining or no-fee trading models.

Historical BTC to Fiat Spot Volumes – Top 5 Fiat Currencies

Bitcoin trading to Korean Wan (KRW) increased sharply from the 7th of October.

BTC to KRW previously represented a tenth of bitcoin trading among the top 5 fiats on average. Between the 7th and 15th of October it represented a third on average, a 230% increase. This increase stems from Korean exchange Bithumb’s spike in volumes.

Proportion BTC Trading to Various Fiat Currencies

The US Dollar represented half of BTC fiat trading on average over the past 30 days, followed by JPY (21%) and KRW (16%).

Summary of Volumes, Coins and Pairs

Top Exchanges by Average 24H Volume in USD

Exchange 24H volume (USD million) Coins Pairs
Binance 977.5 160 408
OKEX 405.0 171 511
Bitfinex 368.5 96 281
Bithumb 323.2 13 13
HuobiPro 310.2 128 293
HitBTC 295.2 427 889
ZB 247.6 58 167
Upbit 211.0 132 261
Bibox 208.9 87 210

Top Exchanges by Number of Pairs

Exchange 24H volume (USD million) Coins Pairs
Yobit 27.7        1,180        7,032
Cryptopia 3.5            785        4,321
CCEX 0.1            628        2,140
EtherDelta 0.2        2,058        2,059
HitBTC 295.2            427            889
TradeSatoshi 0.1            200            840
Bittrex 49.1            514            637
Livecoin 12.5            249            595
WavesDEX 0.9            163            592
IDEX 0.7            563            563
OKEX 405.0            171            511
Kucoin 10.1            189            450
Binance 977.5            160            408
Gateio 48.8            172            358
Zecoex 1.4            119            342

Historical 24h Volume – Top 8 Exchanges

The top exchange by 24h spot trading volume was Binance with an average of just under 980 million USD.

By average 24h volumes, Binance was followed by OKEX and Bitfinex with volumes of 405 million and 368 million respectively.

Bithumb saw a 356% spike in trading volumes from an average of 140 million USD to an average of 640 million USD after the 7th of October. This follows after Singapore-based BK Global Consortium bought a controlling share in the exchange.

Bitfinex saw a spike in volumes towards the 15th of October as the Bitcoin premium on Bitfinex vs Coinbase reached an all-time high of 11.28% according to CrypoGlobe.

Month on Month Average 24H Trading Volume – Top Exchanges

Average Bithumb volumes increased 187%, while those for Binance and OKEX dropped by 8% and 35% respectively

Korean exchange Bithumb saw a significant increase in average trading volumes from 96 million USD between August/September to 276 million between September/October. Meanwhile, Binance’s volumes over the same time period dropped from 974 million USD to 893 million USD. Finally, the 2nd largest exchange by 24h volumes, OKEX, saw trading volumes drop 655 million USD to 423 million USD.

Country Analysis

Exchanges maintain operations in a variety of countries, in order to serve the wider global community of cryptocurrency traders. They often change legal jurisdiction to avoid regulation in countries that might restrict their abilities to conduct business as they wish. The following country analysis aims to highlight the top 10 legal jurisdictions by the total 24h volume produced by the top exchanges legally based in each jurisdiction.

Top 10 Exchange Legal Jurisdictions – 24h Volume vs Exchange Count

Maltese-based exchanges produced the highest total daily volumes, while the highest quantity of top exchanges are based in the USA and the UK.

Maltese exchanges produce the highest total daily volume at just under 1.4 billion USD, followed by those based legally in South-Korea (~840 million USD) and Hong Kong (~560 million USD). Among the top 10 volume-producing countries, the highest number of exchanges (with significant volume) are based legally in the USA, the UK and Hong Kong.

Top 10 Exchange Legal Jurisdictions – Constituent Exchanges by Impact on Volume

Binance and OKEX represent the vast majority of Malta’s volumes, while Bithumb and Upbit dominate in South Korea.

Top 10 Exchange Legal Jurisdictions – Constituent Exchanges and Count


Well-known USA-based exchanges include Coinbase, Poloniex, and itBit, while those in South Korea include Upbit, Bithumb and Coinone.

Hong Kong exchanges include HitBTC, CoinEx and Bit-Z, while those in more remote jurisdictions include HuobiPro in the Seychelles, ZB in Samoa and Coinbene in Vanuatu.

Pair Offering Analysis

The following analysis aims to highlight both the total volumes produced by crypto-crypto vs fiat-crypto exchanges as well as the total number of exchanges that fall within each category.

Crypto to Crypto vs Fiat to Crypto – Average 24H Volume and Exchange Count

On average, exchanges that offer only crypto-crypto pairs constitute approximately three quarters of the total spot trading market (~4.7 billion USD)

Those that that offer fiat-crypto pairs constitute only a quarter of the total exchange market (~2 billion USD) on average. In terms of exchange count, approximately half of all exchanges offer crypto-crypto.

Trade Data Analysis

This analysis aims to shed light on the trading characteristics of given exchange. It helps to answer whether an exchange’s volumes might be the product of consistently large trades, or the product of many small trades which may suggest the use of algorithmic trading or bots.

Average 24H Trade Frequency vs Average Trade Size – Top 25 Exchanges

CoinEx, a well-known trans-fee mining exchange, has a significantly higher trade frequency and lower trade size than other exchanges in the top 25.

This may point to algorithmic trading, given its almost 176 thousand daily trades at an average trade size of 125 USD. In contrast, Bithumb and HuobiPro had an average trade size of just under 3,000 and 1,500 USD respectively.

Average 24H Trade Frequency vs Average Trade Size – Top Exchanges

Exchange AVG 24H Volume (Millions) Average Trade Size (USD) Trades in 24H (Thousands)
1 Binance 977.5 950 95.7
2 OKEX 405 701 48.5
3 Bitfinex 368.5 1,438 38
4 Bithumb 323.2 2,788 12.4
5 HuobiPro 310.2 1,483 18.7
6 HitBTC 295.2 2,873 12.1
7 ZB 247.6 702 29
8 UPbit 211 732 22.5
9 Bibox 208.9 1,253 16.4
10 EXX 159.9 1,134 24.1
11 BitZ 143.9 2,333 8
12 IDAX 131.5 520 37.4
13 CoinEx 113.6 125 175.6
14 CoinBene 113.2 298 35.2

Web Traffic Analysis

This analysis examines the web traffic stats of the top exchanges within CryptoCompare’s total pool of exchanges. It is based on similar studies that have attempted to make a connection between the number of unique web users per domain and the subsequent 24h trading volume for that specific domain. This analysis assumes that the more unique visitors an exchange attracts, the higher its trading volume.

Average Daily Visitors versus 24H Volume – Alexa Rankings Above 100,000

IDAX and CoinBene appear to have lower average daily visitors compared to similarly sized exchanges by daily volume.

The figure above represents the top exchanges by volume that have an Alexa ranking above 100,000. The reason for this is that according to Alexa, any ranking below this may not be statistically significant.

What we can see that exchanges such as IDAX and CoinBene have lower Average Daily Unique Visitor numbers than other exchanges with similar volumes such as Kraken, Bitstamp, and CoinEx.

Binance has the highest average daily visitor count, in line with its high trading volumes. Meanwhile, exchanges such as Coinbase, and Bittrex have significantly greater numbers of daily visitors than other exchanges with similar daily volumes. In Coinbase’s case, this can be attributed to the exchange’s reputation and age.

Average Daily Visitors versus 24H Volume – All Alexa Rankings

ZB and EXX attract significantly lower daily visitors than similarly-sized exchanges.

The above figure represents the top 20 exchanges by 24h volume regardless of whether their Alexa rankings are below 100,000. Noticeably, unique visitor counts for exchanges ZB and EXX are significantly lower than other exchanges within a similar 24h volume band.

These exchanges maintain average daily trading volumes of 248 million and 160 million USD
respectively. Despite this, their daily unique visitor counts amount to no more than 700 visitors per day.

Although there is a chance that these web statistics may present errors given Alexa rankings below 100,000, in the interests of mitigating any potential risks, these exchanges will be flagged until clarification is provided.

Order Book Analysis

The following order book analysis investigates the relative stability of various cryptocurrency exchanges based on snapshots of the average order book depth for the top markets on each exchange in 10-minute intervals over a period of 10 days. In the context of this analysis, average depth down is defined as the cumulative volume required (in USD) to reduce the price of a given market by 10%. This is compared to the average daily volume for the top 5 pairs. The result of this analysis is that we are able estimate the relative stability of a given exchange based on the ratio of depth down to average daily pair volume.

Average Order Book Depth Down vs Average Daily Exchange Pair Volume

In relative terms, CoinBene, ZB and CoinEx have the thinnest markets.

Despite relatively large average volumes per top pair (~12 million USD), CoinBene’s average order book cumulative depth down (order book buy side) totals only 33 thousand USD. In other words, to move the price 10% downwards, a trader would need to sell 33 thousand USD worth of currency.

In contrast, Kraken which has similar average daily pair volumes (~13.5 million USD), has an average order book cumulative depth of 4.2 million USD. This is almost 130 times larger than that of CoinBene’s and therefore suggests a much more stable exchange.

Average Depth Down to Average 24H Pair Volume Ratio

ItBit, Kraken and Bitstamp have relatively more stable markets compared to exchanges such as CoinEx, ZB and Coinbene.

In the case of ZB for instance, its depth to volume ratio was just 0.4%. I.e. in order to move the price down 10%, a trader would only need to sell 0.4% of average daily pair volume. These ratios are similarly low in the case of CoinEx (0.7%) and CoinBene (0.3%).

Meanwhile other exchanges such as Bitstamp and ItBit, had ratios of 30% and 40% respectively. This is a factor of 100 times greater than those of CoinBene’s for instance.

Transaction-Fee Mining Exchanges

Average 24H Trans-Fee Mining Volumes

The total average 24h-volume produced by trans-fee mining associated exchanges on CryptoCompare totals more than 550 million USD. This constitutes approximately 10% of total exchange volume over the last 30 days.

Decentralized Exchanges

Average 24H DEX Volumes

The total average 24h-volume produced by the top 5 decentralized exchanges on CryptoCompare totals just less than 2.4 million USD. This constitutes just 0.4% of total exchange volume.

Security Analysis – Top 100 Exchanges by 24H Volume

This security analysis aims to evaluate a pool of the top 100 exchanges by 24h volume considering the proportion of exchanges with both a public privacy and a terms & conditions page. In addition, we analyse the proportion of exchanges that have been hacked in the past as well as the publicly stated proportion of cold wallet vs hot wallet storage for users’ funds. In theory, the higher the amount of funds stored in “cold storage” (i.e. offline), the less exposed the funds held by a centralized exchange will be to hackers.

Proportion of Exchanges with both a Public T&C and Privacy Policy Page

Out of the top 100 exchanges by 24h volume, only 86% have both a public privacy policy and terms & conditions page.

Proportion of Users’ Funds Held by Exchanges in Cold Storage

A third of top exchanges store the vast majority of users’ funds in cold wallets.

Proportion of Users’ Funds in Cold Storage by Exchange

Exchanges itBit, Coinfloor, Bitfinex and Coinbase are among those that store the highest proportion of users’ funds offline.

Proportion of Exchanges Hacked in the Past

11% of top exchanges have been hacked in the past.

KYC Requirements Among the Top 100 Exchanges

Just under half of top exchanges impose strict KYC requirements, while more than a quarter do not require KYC.

Those that impose partial requirements (25%) require KYC verification in order to conduct certain activities such as to withdraw fiat, to trade fiat pairs, or to increase maximum trading amounts.

Trade Data Assessment of New Exchanges

A visual inspection of the trades on the new exchanges is now carried out. Snapshot data cannot capture volatility, so these trade graphs allow the characteristic trading to be assessed in light of its effect on the CCCAGG. Graphs were produced of all trades vs the CCCAGG for the top 5 trading pairs for each new exchange over the last month.


BCEX displays high volatility on both of the pairs that it trades. Buying of large amounts of the order book is visible, suggesting a very thin market. The price on this exchange will accordingly not reflect the price of the cryptocurrency well, so it will not be included.


Top trading pairs on CoinTiger display agreement with the CCCAGG, but due to anomalous volumes further monitoring will be carried out before considering inclusion into the CCCAGG.


Pairs on ICoinBay show agreement with the CCCAGG. This exchange is a possible inclusion to the CCCAGG.


A flash crash on the largest trading pair elicits a longer period of assessment before consideration for inclusion into the CCCAGG.


Pairs on Liqnet show agreement with the CCCAGG. However, large amounts of API downtime can be observed. The quality of the exchange API will be monitored and the exchange will be considered for inclusion in the event of an improvement in API provision.


Poor agreement with the CCCAGG gives grounds to exclude P2PB2B.


StocksExchange displays some unusual trading activity and a flash crash. The exchange will not be included due to trading behaviour.

Example Assessment of BTC to USD and Future Exchange Methodology Additions

This section provides a quantitative analysis of trade data received from exchanges. The purpose is to provide an understanding of what the exchange trading ecosystem looks like, and to allow for selection of exchanges that best represent the price of a cryptocurrency.

In order to make comparisons across exchanges, an estimate of the trading price of the cryptocurrency needs to be ascertained. For the BTC-USD pair, all trades over a 30-day period were collated and plotted. In this time period, there were around 6.5 million unique trades. The trades are plotted such that colour indicates the density of points in the area.

All BTC to USD trades over 30 days

This graph represents the entire ecosystem of the price of BTC-USD trading over a 30-day period. This is now used to generate a representative price for BTC. The median was selected to calculate a trading price for the cryptocurrency. The motivating factor behind this measure being used was the large number of outliers in the trade data set. To keep the computation tractable, trades were grouped into 1-hour long time bins, and the median for each of these bins was computed.

For the purposes of this investigation, volume weighting was not used. This was due to high volume buying up of order books being observed when looking at individual exchange trade data. It was hypothesised that the arithmetic median would better reflect the mid-price of the order books of the exchanges, as the majority of trades take place at the mid-price. The median should therefore reflect the price that the average trade was carried out at.

The 1-hour median line was then plotted on the trade data, and a visual inspection of a section of the above graph shows that the line follows the highest trade density, which is indicative that it is a good estimate of the trading price of the cryptocurrency.

BTC to USD trades over 30 days with hourly median price line

CryptoCompare’s CCCAGG is an aggregation of trade prices, and aims to reflect the current trading price of an asset. It is possible to validate the CCCAGG price by comparing it to the median trade price. It can be seen that there is agreement between the two measures, suggesting that the CCCAGG is accurately capturing the trading price.

CCCAGG Price vs Median Trade Price for BTC to USD



BitMEX Research Sponsors Fork Monitoring Website

Abstract: We are proud to announce the launch of, a new website sponsored by BitMEX Research. The website is connected to several different nodes, both Bitcoin and Bitcoin Cash implementations. It displays various pieces of information regarding the chains followed. This website can be useful for monitoring the situation during network upgrades (softforks or hardforks), as well as being potentially useful in helping to detect unintentional consensus bugs. Thanks to Sjors Provoost for helping develop the site.


New Website:


(Website screenshot as at 3rd Nov 2018)


The website is currently connected to the following 13 nodes:

Bitcoin Nodes Bitcoin Cash nodes
Bitcoin Core Bitcoin ABC 0.18.2
Bitcoin Core 0.17.0 Bitcoin ABC 0.18.0
Bitcoin Core 0.16.3 Bitcoin ABC 0.17.2
Bitcoin Core 0.16.0 Bitcoin ABC 0.16.2
Bitcoin Core 0.10.3 Bitcoin ABC 0.14.6
Bitcoin SV 1.0.1
BUCash 1.5.0

(Nodes run by as at 4 November 2018)

The website is primarily geared towards Bitcoin Cash, running 8 Bitcoin Cash nodes compared to 5 Bitcoin nodes. The reason for this is the upcoming Bitcoin Cash hardfork, where several different nodes appear designed to follow different chains.

The website may also be useful in monitoring the situation during this upgrade. After the Bitcoin Cash hardfork is complete, the website’s intention is to move some of the focus over to Bitcoin. The plan is to run more versions of Bitcoin Core (especially older versions), as well as independent implementations such as Bcoin, BTCD and Libbitcoin. This may be helpful in spotting any consensus bugs, such as the inflation bug CVE-2018-17144, which was discovered in September 2018. The website’s code will be made open source, which may hopefully encourage other organisations to spin up multiple nodes and monitor the chains in a similar way.

The Bitcoin Cash hardfork

At around 16:40 UTC on 15th November 2018, Bitcoin Cash is expected to hardfork. There is potential for three competing chains:

  • a hardfork implemented by Bitcoin ABC
  • a second hardfork implemented by Bitcoin SV
  • potentially the original rules chain

A list of some of the main clients and their respective positions on the hardforks is provided below:

Client name Comments
Bitcoin ABC Versions of Bitcoin ABC after and including 0.18.0 are expected to activate a hardfork at around 16:40 UTC on 15 November 2018, according to the median past time. Versions of Bitcoin ABC prior to this, are not expected to follow this new chain.

In our view, Bitcoin ABC is the most popular implementation and the economic majority of Bitcoin Cash users are likely to support the hardfork and follow the new chain. It is unclear to us what will happen to older versions of Bitcoin ABC; however, the likely outcome is that no additional blocks are produced on the original chain.

Bitcoin SV Bitcoin SV (or Bitcoin Satoshi’s Vision) is a client promoted by Craig Steven Wright, who is popularly known as the “Fake Satoshi”. In 2016, Mr Wright produced what he claimed was proof that he was Satoshi, however it quickly emerged that this was a digital signature copied from Bitcoin’s Blockchain, presented in a manner designed to be confusing.

Bitcoin SV is also expected to activate a hardfork at the same time as Bitcoin ABC, however, this hardfork is supposedly incompatible with Bitcoin ABC.

In our view, Bitcoin SV is likely to have limited support from users, investors and traders. However, some of the large Bitcoin Cash mining pools, apparently support Bitcoin SV or are otherwise affiliated with Mr Wright:

  • Coingeek: 25% share (A pool owned by Calvin Ayre, allegedly a financial backer and  supporter of Wright)
  • BMG Pool: 12.5% (Another pool believed to be linked to Wright, with BMG being a division of Wright’s company nChain Group)
  • SV Pool: 7% market share (A pool set up to support Bitcoin SV)

In addition to the above, the listed Canadian mining company Squire Mining (SQR CN), with a CAD$65 million market capitalisation, is likely to be supporting Bitcoin SV.

According to Squire’s investor presentation, Stefan Matthews is a director while Bloomberg data shows that he owns 9.3% of the company’s shares. Furthermore, a June 2016 book on Wright entitled “The Satoshi Affair” implies that Matthews is a long standing and close friend of Wright. Matthews was the CEO of “nChain”, another company deeply involved in the shenanigans of the “Fake Satoshi”. Squire’s investor presentation states that Mr Matthews:

is currently the chairman, of the nChain Group, known for global leadership in blockchain and Bitcoin research. BMG, a division of the nChain Group

Therefore we believe it is likely that despite the lack of community support for Bitcoin SV’s hardfork, the chain could have considerable hashrate, even if it’s only for a limited period. Although, despite all the noise and promotion generated by nChain, Coingeek and Wright, we do not know for sure if the mining pools related to these entities are actually running Bitcoin SV. Even if Bitcoin SV does have significant or even majority hashrate, if the Bitcoin Cash economy ignores it, the chain should have little financial impact. We view this as the most likely outcome.

Bitcoin Unlimited There is a third client group called Bitcoin Unlimited. This group’s BUCash 1.5.0 client is designed to follow the hardfork of Bitcoin ABC. Earlier versions may behave differently.

While it appears that the economic majority will support Bitcoin ABC’s hardfork, there is significant uncertainty over how each client will behave and which chains they will follow. Therefore, BitMEX Research has sponsored this new website which has launched before the hardfork is due to occur. This will hopefully provide useful information to some stakeholders, as the events get underway next week.


Competing with Bitcoin Core

Abstract: We examine the power and dynamics of the “Bitcoin Core” software project and we draw distinctions between the various different ways one can compete with the project. We address the misconception that the Bitcoin Core software repository has the unique capability to change or prevent changes to Bitcoin’s consensus rules. We also discuss some common misconceptions and explain that if the Bitcoin Core repository becomes hijacked by nefarious actors or deleted, Bitcoin should be largely unaffected.

Venn diagram illustrating the various ways to “compete” with Bitcoin Core

(Sources: Bitcoin ABC, Bitcoin UASF, BTCGPU, Bitcoin XT, BTC1, Bitcoin Classic, Bitcoin Cash Cobra, Bitcoin SV, Bitcoin Unlimited, BitcoinX, Bitprim, Bcoin, Parity Bitcoin, BTCD, Libbitcoin, Caesure, Bits of Proof, Bitcoinj, Ufasoft Coin, Bitcrust, Picocoin, Bitcoin Addrinex, Bitcoin Knots, Bitcoin-RBF, Bitcoin BitMEX Research)

The three kinds of competition

One can categorise competing software projects with Bitcoin Core into three different groups:

Type of competition Explanation
Competition between chains This is when the competing software project deliberately has a different set of consensus rules to the implementations the users currently run. This includes both hardforks and softforks. Running such software can be considered risky in certain circumstances, as it can split the coin into two chains.

Therefore this kind of competition is between different coins/chains, rather than  merely competing with a different implementation of Bitcoin. Indeed if one does a software fork of Bitcoin Core and changes the consensus rules, most of the code is still likely to be written by the same development team, so it is not really competing against the team, but potentially launching a new coin whose code was written by that same team.

Competition between independent implementations This form of competition occurs when Bitcoin is re-implemented without using the code from Bitcoin Core. Typically a new coding language is used; to try to capture some advantages other languages may have.

Like the above form of competition, many consider this form of competition risky, as it may increase the chance of unplanned chain splits, caused accidentally by different consensus rules. The alternative client needs to match the consensus behaviour of the software users currently run, even matching bugs or unintended behaviour in the majority client.

Other competing software projects (which neither change the consensus rules nor re-implements the codebase) One can compete with Bitcoin Core by neither trying to change the consensus rules nor by writing a new independent codebase. One can do this by creating a software fork of the project and then making only non consensus changes.

This type of competition does not share many of the risks mentioned above.

The debate over competing consensus rules

This topic has been widely discussed in the Bitcoin community, largely in the context of the “blocksize war”, which ran from the summer of 2015 to November 2017. We are not going to repeat all those arguments in this report, where the primary purpose is to articulate the different types of competition.

In favour of competition Opposed to competition
Competition over the rules should be encouraged, since this ensures the coin is flexible and able to adapt and compete. The model of the status quo ruleset always prevailing mean that the rules may never change, even when the case is highly compelling, as in this contentious environment a minority will always oppose any change.

Competition over the rules is far less likely to cause significant disruption than many people think. In reality large businesses and the community will quickly rally behind one coin and change the client they run to follow the economic majority or hashrate majority.

It is best to try to avoid competition over the consensus rules, as doing so is risky and damages the stability of the coin. In the event of a dispute, the existing consensus rules should prevail, this keeps the existing rules of the coin, such as the 21 million cap robust, a key and unique property of Bitcoin. The disruption which can be caused by changing the consensus rules without widespread agreement, is therefore a highly desirable characteristic of Bitcoin.

Changing the consensus rules should therefore occur in one of the following two ways:

  1. With widespread agreement across the community of coin users and technical experts.  Sufficient time must also be given for users to upgrade their clients
  2. If developers are unsure if a sufficient number of users will upgrade to the new rules, this could result in the launch of a new coin. In this case various safety measures such as strong two way replay protection and chain wipeout protection (for both fully verifying clients and light clients) may be necessary to reduce the risk of users losing funds

(If the change in the rules is a softfork (as opposed to a hardfork), it may be possible to prevent a chainsplit if the majority of miners upgrade)

The debate on competing independent implementations

As above, this is also a very controversial and divisive topic, however we still think it’s a fundamentally different issue to competition over deliberate changes to the consensus rules.

In favour of competition Opposed to competition
Although one dominant implementation may protect the network from unexpected consensus bugs, it may leave the coin exposed to certain types of critical bugs, such as bugs which caused clients to crash or allow unexpected coin inflation to occur. A recent example of this is CVE-2018-17144, a critical inflation bug only discovered in September 2018.

If, for example, there were ten independent implementations, each with a 10% market share, if a bug occurred on one of the implementations which caused it to crash or caused inflation, 90% of the network could continue as normal. The network would therefore become more resilient. Diversity of the clients users run is therefore a key strength.

The strongest opponent of this form of competition was probably Satoshi, he/she famously said:

I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea.  So much of the design depends on all nodes getting exactly identical results in lockstep that a second implementation would be a menace to the network.  The MIT license is compatible with all other licenses and commercial uses, so there is no need to rewrite it from a licensing standpoint.

A second version would be a massive development and maintenance hassle for me.  It’s hard enough maintaining backward compatibility while upgrading the network without a second version locking things in.  If the second version screwed up, the user experience would reflect badly on both, although it would at least reinforce to users the importance of staying with the official version.  If someone was getting ready to fork a second version, I would have to air a lot of disclaimers about the risks of using a minority version. This is a design where the majority version wins if there’s any disagreement, and that can be pretty ugly for the minority version and I’d rather not go into it, and I don’t have to as long as there’s only one version.
(Source: Bitcointalk)

Although ten popular implementations might be good, the issue is the transition from one dominant implementation to a diversity of popular clients, without entering dangerous territory such as two popular independent implementations, each with a 50% market share, leaving the network vulnerable to consensus bugs. Therefore a better plan may be to have one dominant implementation which is highly scrutinized, to keep consensus bugs to a minimum. This way the network may be reliable for all users, even 10% of a minority chain may be a problem for that 10%.

Other competing clients

Even if one really likes a robust ruleset, opposes competition over the consensus rules and one religiously follows Satoshi’s negative view about competing implementations, this does not mean one cannot have competing software projects. The competition can simply be in the white area, outside of the circles in the above venn diagram. This form of competition, which neither initiates a deliberate change to the consensus rules nor re-implements the code, is not controversial at all, as far as we can tell.

Therefore in theory Bitcoin never needs to suffer from the apparent problems of who controls a particular software repository in Github or arguments over who has commit access to the repository. In our view, many of these apparent problems are based on a misunderstanding, by people who appreciate some of the risks of competing software projects, but fail to distinguish appropriately between the different types of competition. Therefore many seem to overestimate the power of the Bitcoin Core software repository, thinking that any competition is risky or somehow unacceptable.

Bitcoin Core’s genesis

Prior to 2013, there was no software project named Bitcoin Core. The Satoshi client was sometimes just called the reference implementation or Bitcoin-QT/Bitcoind. Then in February 2013, Gavin Andresen, a prominent Bitcoin developer, posted to the Bitcoin Foundation forum asking:

There was some discussion about renaming Bitcoin-Qt and the reference implementation in general in IRC today; I thought some of you smart people might have good name ideas.

Mike Hearn, another developer, then responded:

Oh good, about time. This has irritated me for a while. How about Bitcoin Core?
(Source: Bitcoin Foundation Forum)

Many then started referring to the software project as “Bitcoin Core”, but nothing actually changed. Bitcoin Core then began to develop a strong brand, associated with prudence and stability, or as Gavin said at the time, “[its] like a rock”.

The impact of the “blocksize war”

During the blocksize war, many characterised the debate as being Bitcoin Core vs miners or large businesses, with the Bitcoin Core side opposing hardforks and blocksize limit increases. In our view the characterisation was mostly incorrect. However, many who made this characterisation then subsequently concluded that Bitcoin Core won, since there was no hardfork. This same group therefore currently overestimate the power of Bitcoin Core, in our view.

Bitcoin Core is not as powerful as many people think

It is not the Bitcoin Core software repository that defines Bitcoin’s consensus rules. The rules are defined by the clients economically significant users currently run. These are typically previously released versions of Bitcoin Core. The Bitcoin Core software project cannot change what software users are running and the users are a lot more independent minded than many people think, in our view. Even if Bitcoin Core had released a hardfork client, which increased the blocksize limit, it is not clear if the community would have upgraded. Therefore concerns about the Bitcoin Core software repository becoming deleted, hacked or hijacked should be far less of an issue than many people think. If this happens it will not affect clients users are already running and if further upgrades or improvements are needed, one can simply switch to a different repository or many different repositories, without worrying about any coordination problem or other risks.

Actually, in the summer of 2017, in some ways, a client competing with Bitcoin Core, Bitcoin UASF, overthrew Bitcoin Core and deliberately changed the networks consensus rules. Therefore, concluding that Bitcoin Core is all powerful, is the wrong lesson to learn from the blocksize war.

BitMEX Research is launching a new client to compete with Bitcoin Core (For illustrative purposes only)

Today BitMEX Research is announcing a new client to compete with Bitcoin Core, Bitcoin BitMEX Research. Since it is a software fork of Bitcoin Core, it carries none of the risks of not being bug for bug compatible, like Satoshi was concerned about. The BitMEX Research client also doesn’t change Bitcoin’s consensus rules, so the concerns about contentious chainsplits do not apply. Therefore, if the Bitcoin Core repository gets hijacked or deleted, the codebase can still improve using the Bitcoin BitMEX Research client or any other set of clients.


Following the resolution of the blocksize war, there is too much emphasis on the power of the Bitcoin Core software repository. Common questions now are “Who controls the repository?”, “What if they delete the Bitcoin Core GitHub?”. In our view, these questions may illustrate one is missing the point of Bitcoin.

People tend to look for somebody who is in control of Bitcoin’s protocol rules. Prior to and during the blocksize war, many thought it was miners, large businesses or Gavin Andresen. One of the unexpected negative consequences of that war is that many seem to have switched their opinions to believing Bitcoin Core is incharge, an equally flawed view. The truth is, as hard as it is to appreciate, end users are ultimately in charge of Bitcoin.

Of course this could be unrealistic, in reality, ASIC manufacturers, large mining farms, developers, large custodians, large exchanges and even an individual software repository are highly influential. We may be idealistic in saying that users are ultimately in control. However, isn’t that what “user controlled money” means? If one doesn’t think users control Bitcoin, what exactly is Bitcoin for anyway?



SegWit vs Bitcoin Cash transaction volume update & Bitcoin Cash investor flow update

Abstract: In March 2018, we wrote a piece on the SegWit capacity increase and compared it to Bitcoin Cash transaction volume. Another topic we have focused on is coins moved for the first time since the split, on both sides of the chain (our September 2017 report). In this piece we briefly provide an update on the metrics we were tracking. The data shows that SegWit is enjoying strong and consistent growth, while Bitcoin Cash volume is also slowly increasing from its lows, to around 9% of Bitcoin transaction volume. As at October 2018, very few pre-split coins are moving for the first time since the fork.



SegWit transaction volume – Percentage of Bitcoin transaction volume (Daily data)

(Source: BitMEX Research, Bitcoin blockchain)

On the Bitcoin network, SegWit adoption has grown substantially since our first article on the topic in September 2017. Adoption now approaches 50% and the growth has been reasonably consistent and gradual throughout the period.


Daily transaction volume

(Source: BitMEX Research, Bitcoin blockchain, Bitcoin Cash blockchain)

As the above chart indicates, Bitcoin Cash transaction volume declined from the c10% of Bitcoin level in March 2018, when we last commented on the topic, to around 6%. Then in the late summer of 2018 Bitcoin Cash volume picked up again, to around the 10% level. The Bitcoin Cash numbers are somewhat skewed by the “stress tests” which occurred in August 2018 and then September 2018. However, the median daily Bitcoin Cash percentage transaction volume compared to Bitcoin in the last six months is 9.0%, a recovery compared to earlier lows of around 5% or 6%.


Cumulative transaction volume since the launch of Bitcoin Cash

(Source: BitMEX Research, Bitcoin blockchain, Bitcoin Cash blockchain)

Since the launch of Bitcoin Cash, 22.1 million SegWit transactions have taken place, only 17.0% more than the cumulative number of Bitcoin Cash transactions, which stands at 18.9 million. Although, as the chart above illustrates, this appears to be skewed somewhat by the stress tests.

Prior to the start of the stress tests, in July 2017, there had been 15.5 million SegWit transaction, 95.1% more than the number of Bitcoin Cash transactions.


Coins moved for the first time since the fork

(Source:, Original chart idea from BitMEX Research)

As for our investor flow analysis system, 9.1 million Bitcoin which existed prior to the spit has moved at least once since the fork, compared to 8.6 million Bitcoin Cash. As the chart above indicates, the gradient of the spend for the first time since the fork lines are flattening out on both sides of the split, potentially indicating further significant changes in the investor flow dynamics are unlikely.


Tether – Q2 Puerto Rico data & Noble Bank looking for a buyer

Abstract: Bloomberg is reporting that Noble Bank, which back in February 2018 we speculated could be Tether’s primary reserve bank, may be facing financial difficulties. Tether is said to be diversifying away to other banks and this hypothesis is supported by Q2 financial data from Puerto Rico.

New Puerto Rico Financial Data for Q2 2018

Bank deposits in the International Financial Entities (IFE) category, which includes Noble Bank, were $2.9 billion, down 18.4% in the quarter. This is despite continuing growth of  Tether, which is illustrated in the below chart. In our view, this data supports the assertion that Tether is moving its reserves out of Noble and into other banks outside of Puerto Rico. BitMEX Research has also been informed by Tether insiders that the Tether funds have been diversified into other banks.

Puerto Rico’s IFE aggregate deposits versus the Tether balance in millions of USD. (Source: IFE Accounts, BitMEX Research, Coinmarketcap)

Bloomberg are also commenting on the financial data from Puerto Rico, stating:

Puerto Rico has seen a surge of cash related to cryptocurrencies. By the end of 2017, cash and equivalents held by so-called international financial entities, such as Noble, soared to $3.3 billion from $191 million a year earlier, according to data from Puerto Rico’s bank regulator. As of June 30 this year, the total had dropped to $2.6 billion. The majority of that money on the island was held by Noble, people familiar with the matter said earlier this year.

(Source: Bloomberg)

Bloomberg is also reporting that Bank of New York Mellon is no longer Noble’s custody bank.  Tether’s hunt for more reserve banks continues.

Ethereum holdings in the ICO treasury accounts

Abstract: Following on from our first piece on ICOs in September 2017, which focused on the team members and advisors, in this report we work with TokenAnalyst to track the Ethereum balances of the ICO projects over time. We look at the amount of Ethereum raised and the US$ value of the gains and losses caused by changes in the Ethereum price, for each project. We conclude that rather than suffering because of the recent fall in the value of Ethereum, at the macro level, the projects appear to have already sold almost as much Ethereum as they raised (in US$ terms). Of the Ethereum still held by the projects, even at the current c$230 price, projects are still sitting on unrealised gains, rather than losses.


Please click here to download the pdf version of this report


Ethereum raised by 222 ICOs – Macro analysis

ETH raised by EOS 7,211,776 3,824
ETH raised by other projects 7,972,003 1,639
Total ETH raised 15,183,779 5,463
ETH sold by EOS (7,211,776) (3,892)
ETH transferred out/sold by other projects (4,113,345) (1,560)
Total ETH transferred out/sold (11,325,121) (5,452)
ETH Balance remaining (Sept 2018) 3,858,659 830

(Source: Ethereum Blockchain, BitMEX Research, TokenAnalyst, Token Data, Price data from Etherscan)

Overall profits & losses caused by changes in the price of Ethereum – US$ million

Realised gains
EOS project gains 68
Gross realised ETH gains by other projects 692
Gross realised ETH losses by other projects (34)
Net realised gains 727
Unrealised gains
EOS unrealised gains n/a
Gross unrealised ETH gains 403
Gross unrealised ETH losses (311)
Net unrealised gains 93
Total net gains 819

(Source: Ethereum Blockchain, BitMEX Research, TokenAnalyst, Token Data, Price data from Etherscan)


  1. This analysis only considers the Ethereum balances of the ICO projects, which we have tracked on the Ethereum blockchain. Funds raised in currencies other than Ethereum are not considered nor is the balance of the new token created by the project. Our reported totals are therefore lower than some other sources. Therefore while our figures may be an underestimate, one at least has a degree of assurance that the balance is calculated independently of the project. At the same time we are missing several projects such as Tron, as we have not identified a treasury address or an address cluster.
  2. The estimate of the value of Ethereum raised is calculated by taking the highest value of Ethereum inside the address cluster of each project at any point in time (with the exception of EOS). This will result in some inaccuracies.
  3. The estimate of the value of US$ raised is calculated by using the average ETH price during the ICO period. This should therefore be considered as a rough and unreliable estimate.
  4. The estimate for the realised gains was calculated by taking the month end Ethereum balance for the address cluster of each project every month and then looking at the reduction in the Ethereum holdings. The average Ethereum price for each month was then used to estimate the US$ value of Ethereum that was sold. This is likely to be inaccurate and it is possible the project retains ownership of the Ethereum or that the Ethereum was not sold for US$.
  5. While we believe our estimates at the macro level may be reliable, at the individual project level our figures are likely to be unreliable. We apologise for any errors or inappropriate assumptions.

Commentary on the overall Ethereum holdings and sales

The Ethereum price has fallen almost 85% from the US$1,400 peak price in around December 2017. As we mentioned back then, the value of Ethereum and the associated crypto-currencies was high and there was significant downside risk. The large fall in the value of Ethereum led some to question if there could be a “downward price spiral” due to the concentrated Ethereum holdings of the ICO projects. The theory being that many ICO projects were sitting on a large treasure trove of Ethereum and that as the price of Ethereum fell, these projects were going to “panic sell’, fearful of being the last project holding their Ethereum bags. Read more “Ethereum holdings in the ICO treasury accounts”

Unboxing Bitmain’s IPO (Part 2)

Abstract: Following on from our August 2018 piece on Bitmain’s IPO, in this note we look at new information made available in Bitmain’s IPO prospectus, which was published in the last few days. The new filing confirms our suspicion that Bitmain has been making large losses recently, with a net loss of US$395m in Q2 2018. The magnitude of wasted production costs is also revealed, with almost US$0.5 billion spent on failed chips in the last 18 months. However, the document also confirms that Bitmain successfully raised US$442m from investors in August 2018, significantly strengthening their balance sheet. At the same time, this brings the IPO closer, which is good news for Bitmain and something its rivals should be concerned about.

The Income Statement to June 2018

The prospectus discloses financials up to June 2018, one extra quarter compared to what had previously been available. The new income statement confirms our suspicion (driven primarily by lower sales prices) that Bitmain has been making losses recently. As the below table shows, the company lost US$395m in Q2 2018. The IPO prospectus document shows the company making a net profit of US$742m in the first half of 2018, however since we know from the “leaked” pre-IPO presentations that Bitmain made a $1,137m net profit in Q1, we can tell that Q2 was a loss making period.

2015 2016 2017 2018 Q1 2018 Q2
Sales 137.3 277.8 2,529.3 1.896.4 949.1
Gross Profit 71.5 158.1 1,447.1 1,137.3 (107.3)
Net Profit 48.6 118.9 1,249.4 1,137.7 (395.0)

(Source: Bitmain IPO prospectus, BitMEX Research)

However, the losses only relate to a period of one quarter and business conditions may change. One quarter of losses should not be a significant concern to long term investors, especially in a volatile business like crypto-currency mining. Although mining machine prices remain low and Q3 is also likely to be a loss making period, therefore moving back into the black may be challenging. Bitmain may need to raise prices to return to profitability, in our view.

In the document, Bitmain do acknowledge some potential strategic mistakes which may have contributed to the losses, and how they plan to address these issues going forwards:

In early 2018, we anticipated strong market growth for cryptocurrency mining hardware in 2018 due to the upward trend of cryptocurrencies price since the fourth quarter of 2017, and we placed a large amount of orders with our production partners in response to the anticipated significant sales growth. However, there had been significant market volatility in the market price of cryptocurrencies in the first half of 2018. As a result of such volatility, the expected economic return from cryptocurrency mining had been adversely affected and the sales of our mining hardware slowed down, which in turn caused an increase in our inventories level and a decrease in advances received from our customers in the first half of 2018. Going forward, We will actively balance our business growth strategy, inventories and cryptocurrencies assets levels to ensure a sustainable business growth and a healthy cash flow position, and we will adjust our procurement and production plan to maintain an appropriate liquidity level.

(Source: Bitmain IPO prospectus, BitMEX Research)

Cash injections

The balance sheet position improved significantly in Q2 2018, mainly due to new cash injections from new investors. The net cash balance improved from US$104.9m to US$343m in Q2. Investors essentially rescued the company as it neared a cash crisis. As the table below shows, Bitmain raised even more money in Q3, which is likely to improve the cash position even further going forward.

Bitmain issuances of shares

Date Amount raised
August 2017 US$50.0m
June 2018 US$292.7m
August 2018 US$442.0m
Total US$784.7m

(Source: Bitmain IPO prospectus, BitMEX Research)


The inventory balance fell to $887.2m in Q2, compared to the $1,243.8m in Q1 2018. This reduction is likely to be primarily driven by impairments. In H1 2018 Bitmain suffered an inventory write-down of US$391.3m. Therefore a significant proportion of the pain related to the overproduction could have already occurred.

Pre-payment to TSMC & the current mining industry outlook

Worryingly the TSMC pre-payment situation has not materially improved as a drain on working capital, with the balance as at Q2 being US$652.9m, only down slightly from US$666.0m in Q1. This could relate to Bitmain’s new 7nm mining product, which was recently announced. The fact that this was officially announced by the company is a positive, since the failed chips were not announced and therefore this product could finally be successful. This could rescue Bitmain from a difficult business enviroment. However, skeptics would point to the following:

  • This new 7nm project could also be a failure, the company is only announcing it as they are under more pressure (in our view this is unlikely)
  • Moving to 7nm is very challenging and it could take around 12 to 18 months until these devices are as reliable as the 14nm and 10nm products on the market
  • Producing at the 7nm level is too expensive and Bitmain’s rivals, Innosilicon, Ebang, Bitfury have out-smarted Bitmain by selecting the cheaper and larger wafer size in their new products, which have also all been announced in the last few weeks.

Impairments related to failed chips

As we mentioned in our previous piece, “Bitmain has tried to release at least three new more efficient Bitcoin mining chips, one at 16nm, one at 12nm and more recently 10nm in March 2018. Each of these releases failed, costing Bitmain hundreds of millions of dollars”. The disclosure in these documents may reveal that our assessment may have been accurate and the scale of the cost of these failures can now be determined.

Provisions for impairments related to TSMC prepayments & inventory write-downs

Period Value
2017 US$240.4m
2018 H1 US$252.7m
Total US$493.1m

(Source: Bitmain IPO prospectus, BitMEX Research)

The above illustrates just how risky and potentially financially costly it is to produce new chips. Bitmain have paid a high price for some of the failures.

Bitcoin Cash & the crypto-currency holdings

The prospectus does not reveal any significant new information compared to our previous report, individual holdings by coin were not disclosed. The value of crypto-currency on the balance sheet fell to US$886.9m in Q2, compared to US$1,172.4m in Q1. This is likely to be driven by a fall in value in Bitcoin Cash and the other coins. Bitmain disclosed an impairment of its crypto-currency holdings of US$102.7m in Q2, which is likely to have accelerated further into Q3.


The prospectus enables us to quantify the financial impact of mistakes we already suspected that Bitmain had made.

  • Bitmain lost US$0.5 billion on production costs associated with mining chips that failed (or other inventory write-downs)
  • The company was dependent on US$784.7m on new investment to retain a positive cash position
  • Bitmain incurred a net loss of almost US$400m in the most recent quarter, due to having too much inventory and needing to lower sales prices

Obviously many of these mistakes could have been avoided, but all they really show is that Bitmain take risks. If Bitmain didn’t take such risks the company would not have built $1,617m of shareholder equity in the last few years and Bitmain would not have been the largest and most profitable mining company in 2017.

We now know the IPO is close and could occur within a few months. This could provide Bitmain a substantial cash war chest. Although Bitmain’s rivals have very recently successfully began releasing a wave of new more efficient mining products, Bitmain’s new large cash reserves is something they should worry about. Even though Bitmain obtained this money from investors, rather than generating it from free cash flow.

(The timeline of the IPO or number of shares which will be sold has not been disclosed in the filling)


Unboxing Bitmain’s IPO

Abstract: In this piece we review and analyse Bitmain’s financial data, which was made available (or leaked) as part of the pre-IPO process. The figures indicate Bitmain was highly profitable and cash generative in 2017, but may currently be loss making. Bitmain also spent the majority of its operating cash flow acquiring Bitcoin Cash and may have suffered mark to market losses of US$328 million as a result. We conclude that the IPO itself may go well, however going forwards the allocation of investor capital will be key and management may need to improve in this area.


Please click here to download the pdf version of this report


The IPO process

Bitmain expects to submit IPO documents to the Hong Kong Stock Exchange at the end of August 2018, with a public listing expected towards the end of 2018. The company has just conducted a pre-IPO round, raising several hundred million dollars at a valuation of around $14 billion. Therefore we believe the company is likely to attempt to raise several billion dollars at the IPO stage, with a valuation north of $20 billion.

Documents outlining this process, which also contain Bitmain financial data, have been leaked on Twitter. We have reason to believe the authenticity of these documents, which forms the basis for this report.

Bitmain’s position in the mining industry

Area Companies Bitmain’s position
Chip manufacturing/foundry TSMC, Samsung, Global Foundries, SMIC Bitmain has no presence or prospects in this area
ASIC design, mining machine assembly and distribution Bitmain, Canaan Creative, Ebang, Innosilicon, Bitfury Bitmain is the dominant player in this area and this is the company’s core business. In 2017 Bitmain claims to have had a cryptocurrency market share of 85% and a Bitcoin share of 77%
Mining pool operator, AntPool, BTC.TOP, Slush, ViaBTC & F2Pool Bitmain has a dominant position in this space. & Antpool are the two largest pools, which are both owned by Bitmain. Bitmain is also an investor in ViaBTC. In the last six months these three pools had a combined global market share of around 48%
Mining farm operator Hive Blockchain, Genesis mining, Bitmain In 2016 Bitmain is likely to have been a dominant player, however the pre-IPO documents show Bitmain has significantly scaled back in this area.  Revenue from own mining operations has fallen from 18.4% of total revenue in 2016 to just 3.3% in Q1 2018.

(Source: Bitmain pre-IPO documents, BitMEX Research)

Will there be demand for the IPO?

Bitmain has a strong or dominant position in most areas in cryptocurrency mining, as the table above illustrates. Bitmain is likely to be the largest and most profitable company in the blockchain space, which is likely to make the company attractive to many investors.

In the last few years and decades the key lesson many technology investors have learnt, rightly or wrongly, is to always invest in the number one company. The number one company typically benefits the most from network effects and as a result smaller rivals tend to fail. The below list of usual suspects illustrate this basic point:

Sector Company
Messaging app Whatsapp, Line (Japan), WeChat (China)
Search Google
Ride sharing Uber
eCommerce Amazon (US), Alibaba (China)
Music streaming Spotify
Online Video streaming Youtube

Justified or not, the blockchain space is now regarded by many as one of the next big internet based technologies and Bitmain is the number one player in this space. Whether this network effect type logic can apply to ASIC design and distribution is not clear to us and the benefits of being big may be limited to the more traditional economies of scale. We think it is important to not only look at cryptocurrency mining through the technology lens, but also to look at it from the angle of an energy intensive industry, like mining for natural resources. In these sectors the benefits of scale are more limited than for internet based networks. Therefore we don’t completely agree that one should blindly invest in the largest cryptocurrency mining entity, we just think than some investors, perhaps naively, may think this way.  

Bitmain’s own mining operation declines

As we alluded to above, one of the most interesting discoveries in the Bitmain pre-IPO documents was the sharp decline in Bitmain’s own mining farm business. Although the share of revenue has dramatically fallen, in absolute terms own mining revenue still grew by 250% in 2017, its just that the 948% growth in equipment sales overshadowed this.

Bitmain – share of revenue from own mining operations

(Source: Bitmain pre-IPO documents, BitMEX Research)

We believe this decline represents a smart strategic decision by Bitmain to divest (relatively speaking), from an increasingly competitive and lower margin area. In our view, as one moves down the mining supply chain, the competition is likely to increase faster and Bitmain made a sensible move by trying to focus their efforts up the chain, where an increasingly large proportion of the value from mining may accrue. In some ways this is good news for Bitcoin decentralisation, as a dominant mining player has stepped back. We believe ASIC design and distribution is less critical to network security than mining farm operation, which in theory choose the pools who construct blocks and select which blocks to build on top of. Of course Bitmain’s power and dominance in the ASIC space still remains as a significant problem for Bitcoin.

Currently Bitmain are likely to be making losses 

In the documents, Bitmain disclosed the revenue, sales and crucially gross profit margin for each of the main mining products. We have displayed the relevant data in the table below. The data shows that Bitmain sold over a million S9’s in 2017 and then over 0.7 million in Q1 2018 alone.

Financial metrics by mining product

2016 2017 Q1 2018 BitMEX  projection (Current prices)
Revenue by product – $m 
S9 (Bitcoin) 98.1 1,347.4 1,225.9
S7 (Litecoin) 106.3
L3 (Litecoin) 0.9 421.6 344.0
D3 (Dash) 411.6
T9 (Bitcoin) 34.9 84.2
A3 (Siacoin) 76.8
V9 (Bitcoin)
Other 3.3 9.3 9.1
APM Power 13.6 104.8 78.7
Total 222.2 2,329.0 1,829.7
Price – $
S9 1,429.0 1,257.0 1,719.0 499.0
S7 593.0 212.0
L3 1,315.0 1,685.0 1,404.0 209.0
D3 1,581.0 179.0 176.0
T9 1,031.0 991.0
A3 1,431.0
V9 145.0
APM Power 108.0 110.0 95.0
Gross profit margin
S9 58.8% 55.7% 69.9% (11.6%)
S7 58.6%
L3 21.2% 71.0% 44.6% (133.8%)
D3 76.2% (108.8%) (113.8%)
T9 19.9% 49.7%
A3 78.3%
V9 (34.5%)
Total 57.9% 58.9% 61.9% Loss
Volume (units)
S9 68,672 1,071,901 713,158
S7 179,315
L3 676 250,181 245,007
D3 260,313
T9 33,885 84,932
A3 53,703
APM Power 125,513 952,785 828,194
Total 374,176 2,569,065 1,924,993

(Source: Bitmain pre-IPO documents, BitMEX Research, Bitmain website)

Using the disclosed gross profit margin from 2017, we calculated the implied cost price of each machine. Assuming these costs remain unchanged (which may be unrealistic), we were able to calculate gross profit margins based on the latest prices on the Bitmain store. This analysis implies Bitmain are currently loss-making, with a negative profit margin of 11.6% for the main S9 product and a margin of over negative 100% on the L3 product. In reality costs are likely to have declined so the situation may not be as bad, however we think it is likely Bitmain are currently making significant losses.

These low prices are likely to be a deliberate strategy by Bitmain, to squeeze out their competition by causing them to experience lower sales and therefore financial difficulties. In our view, herein lies the key to one of the main driving forces behind the decision to IPO. A successful IPO may increase the firepower available to continue this strategy and eliminate an advantage rivals could have by doing their IPOs first.  

Another reason for these low prices and apparent losses may be that Bitmain has too much inventory on the balance sheet. As at March 2018 Bitmain had $1.2 billion of inventory on the books, equal to 52% of 2017 sales. Bitmain may therefore have had to suffer inventory write downs, which could have generated further losses in addition to the loss making sales.

Use of operating cash flow and balance sheet

The documents contain summary balance sheet data. On the positive side is that Bitmain has no debt and the company was highly cash generative in 2017. The negatives include:

  1. Large prepayments to TSMC, totalling almost $866m in 2017, which weaken Bitmain’s working capital situation;
  2. A large inventory balance, of around $1.2bn (over 50% of peak annual sales) illustrating overproduction;
  3. A large portfolio of altcoins, with a cost base of $1.2 billion which represents the primary use of Bitmain’s cash flow.
Balance sheet – US$ million 2016 2017 Q1 2018 BitMEX projection (Current value)
Bitcoin Cash 673.5 887.5      558.7
Bitcoin 69.1 216.1 148.2      153.1
Litecoin 2.2 49.0 51.2         56.1
Dash 103.0 103.4         55.0
Ethereum 0.6 0.8           0.3
Other adjustment (40.0) (336.7) (18.7)            –  
Total coin assets     31.3      705.5     1,172.4      823.2
Fixed assets    54.0 355.7 175.7
Other   2.4  2.7   3.0
TSMC prepayment     42.7      866.0 666.0
Receivables              7.7   66.4 167.4
Inventory     61.9   1,034.1     1,243.8
Cash 18.2 60.6 104.9
Total assets 218.2   3,091.0     3,533.2
Liabilities      81.3   1,638.3 896.1
Net assets 136.9   1,452.7     2,637.1

(Source: Bitmain pre-IPO documents, BitMEX Research, Prices from Bitfinex)

(Notes: Projections based on prices as at 28 August 2018, coin holdings as at 31 March 2018)

One of the key assets of the company is its portfolio of cryptocurrencies, valued (on a cost basis) at almost $1.2bn as at March 2018. As at March 2018 this consisted of over 1 million Bitcoin Cash. The market value of the altcoin portfolio has fallen in value since Bitmain invested, with almost all the losses attributable to Bitcoin Cash, as the chart below shows.

Bitmains investment in cryptocurrency – change in value vs cost price – $ million

(Source: Bitmain pre-IPO documents, BitMEX Research, Prices from Bitfinex)

(Notes: Prices as at 28 August 2018, coin holdings as at 31 March 2018. Chart assumes coin holding do not change)

As the following chart below illustrates, the Bitcoin Cash investment itself is very significant, to the extent that the company spent around 69% of its 2017 operating cash flow on purchasing Bitcoin Cash. Although this could be an exaggeration, some of the Bitcoin Cash would have been inherited from pre-fork Bitcoin. The figures imply that around 71,560 of the 1,021,316 Bitcoin Cash coins could have been inherited in this way. 

Bitmain use of 2017 cashflow – $m

(Source: Bitmain pre-IPO documents, BitMEX Research)

The situation is even worse than the above indicates. Not only did Bitmain spend a majority of the 2017 cash flow into Bitcoin Cash, they also spent a majority of cash flow from their entire history of operations, into Bitcoin Cash. The documents show that Bitmain generated no cash flow in in 2016 and then only $25m in Q1 2018 (perhaps due to large TSMC prepayments).

Bitmain operating cashflow – $m

(Source: Bitmain pre-IPO documents, BitMEX Research)

In a sense of course none of this matters. Bitmain spent their own funds on risky assets and they knew the risks. For a public company the situation could be a different, with investors expecting the company to invest in core operations or return money to investors. Although perhaps our expectations for governance here are too high for Hong Kong.

Why are Bitmain doing the IPO?

In our view the primary motivating factor for the IPO is simply that Bitmain’s competitors are also planning on doing them and the industry is fiercely competitive, as Bitmain’s loss making prices indicate. Rival Canaan Creative are planning on an IPO and Bitmain are unlikely to let them obtain such a funding advantage. Bitmain’s IPO should deduct money from the pool of capital that could otherwise be invested in Canaan as well as the other miners and it is therefore a good complement to the strategy of lowering prices.

The other reason for the IPO may be to strengthen the balance sheet after investing the majority of the operating cash flow into Bitcoin Cash. Bitmain only had around $105 million of cash on the balance sheet as at March 2018, when this figure could have been nearer a billion dollars if the company hadn’t acquired so much Bitcoin Cash. At the same time the business does require a lot of cash, for example the large advance cash payments TSMC require, which reached a peak of $866m in 2017.

The debate over Bitmain’s technological advantage

Nobody can challenge the performance and scale of Bitmain’s operations Bitmain is losing its lead and has not increased the performance of its miners in over two years
  • It is true that Bitmain competitors have recently released more efficient mining machines than Bitmain, however this is only part of the picture. The figures show that in the past 27 months, Bitmain has delivered 1.9 million S9’s and 3.0 million mining machines in total. No competitor has the capability to deliver on anything like that scale. Rivals can at best deliver a few hundred thousand machines per annum
  • At the same time, although machines from rivals are more efficient, Bitmain’s S9 product is more reliable and has less variance with respect to the hashrate
  • For example, although the Dragonmint T1 product is more efficient, according to official figures. the hashrate variance is higher than expected, this is not acceptable for low margin mining farm operators, who need a predictable product for budgeting purposes. The S9 is the only product that has the necessary reliability
  • Bitmain is the largest player and is lowering prices, such that the other ASIC design companies are now under severe financial stress. Bitmain has already attracted investments from some of the top VC funds in Silicon Valley and the upcoming IPO will ensure Bitmain’s dominance for years to come
  • The Bitmain S9, a 16nm product, was released in December 2015, with an efficiency of around 110 W/TH. The company has not successfully innovated or improved its Bitcoin miner performance since then. This is over 2 and a half years ago
  • Since early 2017 Bitmain has tried to release at least three new more efficient Bitcoin mining chips, one at 16nm, one at 12nm and more recently 10nm in March 2018. Each of these releases failed, costing Bitmain hundreds of millions of dollars. Even TSMC themselves have mentioned that they think the Bitmain investment strategy is too optimistic, which may be part of the reason they insist on such large prepayments
  • These failed tapeouts have finally resulted in competitors producing better machines, today the Innosilicon T2 and ShenMA M10 are more efficient than the S9, with a 80W/TH and 65W/TH performance respectively
  • Bitmain has lost its technological edge as key staff, such as former director of design Dr Yang Zuoxing, have left. Dr Yang is said to have founded a rival mining firm which was sued by Bitmain for a patent violation 
  • Without the ability to innovate and produce better equipment, the only way Bitmain can generate sales is by lowering prices, until eventually the company loses its dominant market position
  • This desperate situation is why some claim that Bitmain tried to mislead investors into thinking it had received an investment from the government investment funds in Singapore. Although we have seen no compelling evidence of Bitmain misleading in the way suggested

The narrative surrounding Bitmain’s technical capabilities can be spun in either direction and as ever the truth may lie somewhere in the middle. However, one thing is clear, if these mining companies do go public, the picture should be far less murky going forwards and we think that could be a significant positive for the cryptocurrency community.


In a way some of Bitmain’s biggest mistakes, such as producing too many units and buying too many speculative altcoins in a bull market, are somewhat analogous to the typical behaviour of mining company management teams.  For instance gold mining firms often invest in high cost assets in bull markets and then fail to invest in quality low cost assets in bear markets. Perhaps it is not totally fair to blame these companies, the hedge funds and institutional investors who own the shares are often just as, if not more, at fault. Greed, fear and the emotions of market moves can affect us all. Therefore although Bitmain has made mistakes, in many ways they are not unusual or unexpected.

We are sure you have heard it before, but “cryptocurrency is here to stay”. In that environment we think Bitmain has the ingredients to be one of the great companies in the space. Bitmain can be a legendary crypto company, generating strong shareholder returns for decades to come, but in order to achieve this (and it’s a lot harder than it sounds) the Bitmain management team may need to improve their management of company resources. Once the company goes public, capital allocation decisions in this volatile and unpredictable market will be difficult enough, letting emotions impact too many investment decisions may not be tolerated.