According to Bernstein analysts, Bitmain, the Chinese company manufacturing Bitcoin miners and running mining pools, is likely to have made around $4 billion in operating profit last year, based on conservative estimates.
The report, published on Wednesday and cited by CNBC, compares Bitmain’s growth to popular chipmaker Nvidia, known for its dedicated graphics processing units, used mainly for high-end video games.
While Bitmain’s profit estimates, calculated with a gross margin of 75% and an operating margin of 65% percent, amounted to around $4 billion, Nvidia’s profit was $3 billion in 2017. However, the report was quick to note that the former managed to attain such figures in only four years, while the latter has been at it for 24.
Most cryptocurrencies, including Bitcoin, require mining in order to generate new coins. The process involves solving complex mathematical puzzles to achieve certain results, and hence require significant computing power.
Where initially miners were able to participate profitably with regular computers equipped with video cards, the dynamics were changed with the introduction of ASIC miners, or application specific integrated circuits, which are designed specifically to perform at peak levels when mining a certain coin.
Bitmain dominates this industry by manufacturing Antminer rigs, which can cost thousands of dollars and are regularly updated with new hardware as Bitcoin’s mining difficulty increases.
Even though Bitcoin mining itself can be profitable, when done at scale, Bitmain has instead focused on selling mining hardware, generating a steady flow of cash and passing on all the risks associated with the volatile crypto market to the miners.
More so, the report points out how the company increases the prices of its mining hardware as Bitcoin goes up, cashing in on the cryptocurrency’s growth and price surges.
Interestingly, even GPU manufacturers like Nvidia saw major growth and stock-price surges in the recent crypto boom as mining hardware became increasingly popular. However, such gains are hardly reliable, given the speculative and volatile nature of cryptocurrencies.
For now, however, it appears that Bitmain will dominate this year as well:
"In the year 2018, Bitmain will likely lead the cryptocurrency asic industry and migrate some of its chips to 10nm and the most advanced 7nm. That will make the company one of the top five users of TSMC's 7nm in 2018, with demand comparable with Qualcomm's, HiSilicon's, or AMD's," noted the report.