Asian online gambling operator 500.com is ramping up its transition to cryptocurrency miner through the purchase of Jihan Wu’s crypto mining pool BTC.com.
On Tuesday, the Shenzhen-based, Nasdaq-listed 500.com announced that it had reached a share exchange agreement with Blockchain Alliance Technologies Holding Company that will see 500.com assume control of the entire mining pool business of Bitdeer Technologies Holding Company, which operates as BTC.com. The deal also involves the transfer of the BTC.com domain and crypto wallet.
The deal will see 500.com issue more than 44m Class A ordinary shares representing around 10% of its outstanding shares to Blockchain Alliance in exchange for all shares in Blockchain Alliance Technologies Ltd held by Blockchain Alliance. There’s also a potential top-up payment of 5% of 500.com’s outstanding shares should BTC.com report a net operating profit of at least US$20m in 2021.
BTC.com ranks as the fourth largest mining pool with an estimated 10% of the BTC (Core coin) hash power. BitDeer’s beneficial owner is none other than Jihan Wu, co-founder of mining hardware outfit Bitmain, who left the firm in late-January following a prolonged and occasionally nasty feud with co-founder Micree Zhan.
500.com has been aggressively expanding into cryptocurrency mining since the year began, starting with a US$14.4m deal in January to buy an unspecified number of “Bitcoin mining machines” from “certain non-US persons.” The machines were said to boast a total hash power capacity of 918.5 PH/s (one PH/s is one quadrillion hashes per second).
In late-January, 500.com paid $13.5m to boost its stake in Hong Kong-based Loto Interactive from 33.7% to 54.2%. Despite its name, Loto Interactive’s primary operations consist of providing data analysis and storage services, with its big data clients being “mainly engaged in cryptocurrency mining business.”
This was followed by 500.com’s Feb. 2 announcement of two agreements with unspecified parties: an $8.5m deal for 5,900 machines and an agreement in principle for an additional 10,000 machines to be acquired sometime later this year. Assuming full delivery of the 15,900 machines, 500.com said its hash rate would increase by 1,000 PH/s.
500.com embarked on its crypto crusade after years of financial flailing. The company had been one of only two Chinese firms approved to participate in that country’s ‘pilot project’ of online lottery sales. (In reality, online lottery sales were rampant, with even tech giants such as Alibaba getting in on the game.)
That all came to a halt in March 2014, when Beijing ordered the ‘temporary suspension’ of online lottery sales after audits revealed widespread corruption at provincial lottery administrators. 500.com’s revenue evaporated overnight, and that ‘temporary’ suspension was never lifted, leading the company to search for alternative means of keeping the lights on.
In 2017, 500.com bought the parent company of online casino brand MultiLotto, which derived over 60% of its revenue from Sweden. That kept the ship afloat a while, until 500.com inexplicably forgot to renew the site’s Swedish license in December 2019, leading to an eight-month revenue drought before the site was allowed to resume its Swedish operations.
Last week, 500.com revealed that it generated revenue of just $3.3m in 2020, barely half the sum it reported in 2019. The company booked an operating loss of $29.2m and a net loss of $34.2m, both of which actually represented significant improvements from the year before.
500.com spent most of last year on the back foot, dealing with a political scandal in Japan over the company’s efforts to secure a local land-based casino license. Several of the company’s local reps were convicted for bribing Japanese pols and 500.com’s auditors quit last September, citing ‘material weakness’ in the company’s internal controls.
The scandal led to the resignation of 500.com’s chairman and CEO. It’s worth noting that Xianfeng Yang, who ran Loto Interactive’s crypto-friendly data centers, was appointed 500.com’s new CEO in late-December, which is around the time that 500.com began expressing interest in “opportunities in the blockchain and cryptocurrency industries.”