Meitu's Cryptocurrency Gamble: Massive Profits and Risks from Bitcoin and Ethereum's Surge

Meitu's Cryptocurrency Gamble: Massive Profits and Risks from Bitcoin and Ethereum's SurgeMeitu (01357) reaped massive profits from its bold 2021 investment in Bitcoin and Ethereum, capitalizing on the recent surge in the cryptocurrency market. Bitcoin's price breakthrough of $98,000 and Ethereum's climb to $3136 directly boosted the value of Meitu's holdings, resulting in a near 90% profit

Meitu's Cryptocurrency Gamble: Massive Profits and Risks from Bitcoin and Ethereum's Surge

Meitu (01357) reaped massive profits from its bold 2021 investment in Bitcoin and Ethereum, capitalizing on the recent surge in the cryptocurrency market. Bitcoin's price breakthrough of $98,000 and Ethereum's climb to $3136 directly boosted the value of Meitu's holdings, resulting in a near 90% profit. This investment success is closely tied to its daring strategic decisions and accurate market trend judgment, but it also highlights the inherent high-risk nature of cryptocurrency market investments.

In Q1 2021, Meitu invested approximately $100 million, purchasing around 940.89 Bitcoins at $52,610 each and approximately 31,000 Ethereums at $1,629 each. This move garnered widespread attention, with Chairman Cai Wensheng declaring on his WeChat Moments that Meitu was the "first" in two ways: the first Hong Kong-listed company to buy Bitcoin and the first global listed company to hold Ethereum as a value reserve. Cai boldly predicted: "Blockchain is the biggest bubble in human history, but it's just beginning. We can only embrace the bubble; non-participation is the biggest risk." This controversial statement, in retrospect, demonstrates his keen foresight regarding future market trends.

Meitu's blockchain exploration didn't begin with its 2021 cryptocurrency investment. As early as 2018, Meitu released a blockchain solution white paper, planning to build a blockchain ecosystem based on AI technology and launch the Meitu Intelligent Passport (MIP), aiming to leverage blockchain technology for decentralized user identity authentication. This reflects Meitu's long-term focus and strategic layout in blockchain technology.

However, Meitu's Bitcoin and Ethereum investment wasn't smooth sailing. After purchasing the cryptocurrencies, Meitu recorded them as intangible assets, using a cost model for measurement. According to relevant accounting standards, the company needed to adjust the fair value of the assets based on market prices. By June 30, 2021, the fair value of Meitu's Ethereum holdings was approximately $65.2 million, and Bitcoin holdings were approximately $32.2 million. At that time, the company had recorded a Bitcoin impairment loss of approximately RMB 112 million, while an unrealized gain of approximately RMB 94.9 million on Ethereum was not recognized.

In 2022, the cryptocurrency market experienced significant volatility. Bitcoin's price plummeted to around $16,200 in December 2022, resulting in significant losses for Meitu's Bitcoin holdings. It wasn't until February of this year that Bitcoin prices rose above Meitu's purchase cost, allowing the company to start seeing profits again. This underscores the high-risk nature of the cryptocurrency market, where even experienced investors can face substantial losses.

Despite the market's wild swings, Meitu's interim report as of June 30, 2024, showed that the fair value of its Ethereum and Bitcoin holdings was approximately $105 million and $57.95 million, respectively. This means Meitu achieved a significant return on its cryptocurrency investment, with an 86% profit on its Bitcoin holdings and a 92.5% profit on its Ethereum holdings. Meitu earned $42.57 million and $46.76 million in profit from Bitcoin and Ethereum respectively, accumulating a total profit of $89.33 million approximately a 90% return on its $100 million investment. This substantial profit brought Meitu considerable financial gains and provided crucial support for its blockchain exploration.

Meitu's purchase of Bitcoin and Ethereum in 2021 coincided with a bull market in cryptocurrencies. Starting in November 2020, Bitcoin's price soared from $13,000 to over $50,000. While Meitu's purchase was at a relatively high point in the cycle, it successfully profited from subsequent market fluctuations. This demonstrates the company's keen grasp of market trends and its risk tolerance.

It's worth noting that Meitu's own share price performance contrasts sharply with the success of its cryptocurrency investment. Meitu went public in 2016 and reached its all-time high of HK$23 per share in 2017. However, its recent closing price is only HK$3.26 per share, with a market capitalization of HK$14.8 billion. This shows that even massive cryptocurrency profits couldn't fully compensate for challenges in other areas of the company's business.

Meitu's successful cryptocurrency investment offers valuable lessons for other companies. Accurate market trend assessment, rational risk evaluation, and a well-defined investment strategy are crucial in cryptocurrency market investment. While Meitu's bet paid off, the inherent high risk remains. Future market fluctuations will significantly impact investment outcomes. Any company considering cryptocurrency investment should carefully assess its risk tolerance and market outlook. Meitu's case showcases the potential for massive returns but also reminds investors to remain vigilant and cautious in navigating market risks. Ultimately, success isn't accidental; it's a result of strategic vision, risk management, and market insight.