WIN OR LOSE: THE GAMBLE SOME ARE TAKING TO BECOME BITCOIN BILLIONAIRES

JIHAN WU – BITCOIN MINING
Jihan Wu is the CEO of Bitmain, the world’s top company of bitcoin mining rigs. Even though the company has only been around since 2013, it was able to bring in $2.5 billion in revenue in 2017 alone. According to Wu, most of the revenue is generated through the direct sale of mining rigs to bitcoin miners. Bitmain also has additional revenue sources like BTC.com and AntPool, two prominent bitcoin mining pools that account for 40% of the world’s Bitcoin mining. All of this has put the company at a private evaluation of anywhere between $9 billion and $12 billion. Wu and co-founder, co-CEO Micree Zhan own about 60% of Bitmain.

Jihan Wu

RISKS OF BECOMING A MINING GIANT
Considering the cryptocurrency market was quite new when the company was founded in 2013, the risks were quite large. Many of these risks are heightened even more in 2018. For example, Bitmain’s headquarters remains in China, even despite the national ban of cryptocurrency trading, mining, and other potential obstacles.

Regulations in China and throughout the world aren’t the only risk that Bitmain has to consider.

Throughout 2018, there has been an increase in prominent projects that have made changes to their consensus algorithms to combat ASIC mining. For Bitmain, sudden changes can mean that some mining equipment (i.e. ASIC mining rigs) can become obsolete quickly and difficult to sell. Depending on production costs, the company risks losing serious amounts of money each time that a project makes algorithm updates.

In addition, it’s difficult to predict whether mining is or isn’t the future of consensus algorithms as a number of projects (i.e. Ethereum) have started to move from Proof-of-Work to Proof-of-Stake, potentially reducing the need for mining equipment.

Despite these risks, Bitmain’s founders have found success and gained bitcoin billionaire status by becoming the biggest player in the cryptocurrency mining market.

INVESTING TO BECOME A BILLIONAIRE
While it’s possible to become a bitcoin billionaire through related industries like mining or possibly by becoming a successful founder of a blockchain project, investing directly in cryptocurrencies appears to be one of the most common ways to gain wealth.

As noted in our recent article that features stories about new, small investors who became rich through cryptocurrency investments, in a lot of cases, investments were only in the thousands of dollars. Even though there are stories where people sell everything to invest they own to invest in cryptocurrencies, the aggregate amount of funds invested is still low when compared to some ultra-rich investors.

There are a few examples where people who are already ultra-rich in terms of fiat currency holdings have decided to invest heavily in cryptocurrencies. One example of this is Alan Howard. Despite the fact that Howard already has an estimated net worth of $1.35 billion, Bloomberg has reported in March 2018 that Howard had invested $400 million. Going by these stats, this investment accounts for roughly 30 percent of his Howard’s wealth. This bitcoin story is quite interesting for a few reasons.

Alan Howard

First, the timing of the investment is essential to understand. Did Howard buy during the bear market or bull market? Given the nature of cryptocurrency price volatility, it can be considered quite risky for someone who is already extremely fiat wealthy to bet big on cryptocurrency. Timing can make a big difference in understanding whether this has or hasn’t been a successful move to date. Either way, this could pay off as a long-term investment.

Second, this gamble is a story that runs counter to the narrative that many ultra-wealthy people have told about cryptocurrencies. For example, both Warren Buffett and Bill Gates have criticized cryptocurrencies.

OTHER WELL-KNOWN CRYPTOCURRENCY INVESTORS
While Howard’s cryptocurrency investment might seem like a big risk for someone who is already wealthy, there are a few other cases where millionaires have decided to take similar risks. For example, Mike Novogratz ($2.3 billion) and Steven Cohen ($11.4 billion) have also invested large sums of fiat funds into cryptocurrencies.

Steven Cohen’s investment took place in July 2018, which is important to note due to the fact that it was likely prompted by the SEC’s ruling that Ether is not a security. While the ruling didn’t have an immediate impact on the short-term prices of Ethereum, this decision possibly mitigated some risk in the eyes of major investors, making Ethereum and many other cryptocurrencies more appealing as long-term investments. Cohen, in particular, invested in several different cryptocurrencies, with Ripple being a notable exception possibility due to speculation that it could potentially be considered a security in the future.

Steven Cohen

MARKET IMPACT OF BITCOIN BILLIONAIRES
The success or failure of those aspiring to become bitcoin billionaires will continue to be an important factor for all investors to watch.

On the one hand, adoption of cryptocurrencies by people who are already fiat billionaires or the creation of large crypto-related companies could lead the market towards more mainstream adoption over time. One thing to consider when looking at the many criticisms of cryptocurrency is whether or not the critics or supporters have invested. Ultimately, it might be beneficial to have a few champions of cryptocurrency who not only have interests in the market but also could help promote market growth.

On the other hand, there is still the possibility that the ultra-wealthy could create a new kind of wealth centralization of token supplies, something which many cryptocurrencies were initially created to prevent.

It will be interesting to note how the creation of bitcoin billionaires will influence the future direction of the market. As of 2018, we have seen a decent mix of bitcoin stories from both individual investors and institutional investors that have found success.