Curse of Chinese Crypto Miners

The Curse of Chinese Crypto Miners: Canaan Shares Drop 47%, But Bitmain And Ebang

The Curse of Chinese Crypto Miners: Canaan Shares Drop 47%, But Bitmain And Ebang

The Curse of Chinese Crypto Miners: Canaan Shares Drop 47%, But Bitmain And Ebang Are Far Away

Another Chinese mining company has become a defendant in a lawsuit. On December 9th, Ebang received a notification to the mailing address that she was being investigated by the Beijing Police Bureau.

According to 8btc, the plaintiff signed a contract with Ebang to purchase 90,000 and 10,000 cloud servers. The total deal was RMB 504 million ($ 72 million). He now claims to have received only 65,000 units of the purchased item from the Ebang division in China’s Zhejiang province, while the Yunnan branch declined. Presumably, the terms of the contract were not fully complied with due to the fact that Ebang supplied the products to an unrelated third party and did not inform the buyer of how to obtain them..

Ongoing litigation could affect the prospects for Ebang’s initial public offering (IPO), which it allegedly intends to conduct in the US.

Earlier, the miner manufacturer Ebit, like its closest competitors Bitmain and Canaan Creative, tried to organize a listing of its securities on the Hong Kong Stock Exchange, but all three companies failed due to the fact that the trading platform refused to allow their applications to later stages. consideration within the six-month period stipulated by its rules. The experts explained that the exchange is not ready to take responsibility for listing shares associated with the volatile cryptocurrency sector. Ebang allegedly hoped to raise up to $ 400 million.

In the first six months of 2018, Ebang had revenues of 2.1 billion yuan ($ 300 million) and a profit of $ 135 million, according to documents issued by the company for the Hong Kong Stock Exchange. In the second half of the year, its indicators “decreased significantly”.

Canaan is ahead, but does not shine

Canaan is the only Chinese mining company to date to see its IPO plan complete. In November 2019, it raised $ 90 million through the NASDAQ exchange with a profitable capitalization of over $ 1 billion.Since then, the value of CAN shares on the market has dropped by 47%.

Analysts of the BitMEX exchange expect that the company will end the current year with a significant loss. Canaan’s records show that it received significant income during the rally in the cryptocurrency market from the first quarter of 2017 to the first quarter of 2018, however, its performance has been steadily declining since then..

As you can see in the histogram above, ASIC miner sales can be extremely volatile. Q1 2019 Canaan hardware sales dropped to $ 7 million, or 96% year-over-year, much stronger than Bitcoin.

Canaan’s IPO was carried out at a market valuation of the company at $ 1.35 billion, which is about 24 times its total profit for 2017 and makes the value of such securities inflated for investors. After the recent decline, it can be considered more reasonable, at least against the background of the broader stock market..

Investing in Canaan should not be viewed in isolation from the behavior of the Bitcoin market. As shown above, miners are reluctant to place orders for hardware during a decline in cryptocurrency, which has recently been showing not very convincing results. Thus, when buying CAN shares, market participants, in fact, are betting on the growth of the price of bitcoin in the future, and the investment attractiveness of this offer is currently not the highest. Nevertheless, the IPO can be considered a huge success for the company itself, which managed to attract additional reserves in case the bearish trend continues..

Bitmain slips at the start

Bitmain, a recognized leader in the Chinese mining space, also has a history of failures associated with attempts to enter the Hong Kong Stock Exchange. According to media reports, Bitmain’s plans may include a new IPO filing, which seems even more likely in light of the recent Canaan placement..

The company’s intention, however, may be thwarted this time by problems in its own governance structure. As it became known in late October, co-founder and former CEO of Bitmain Jihan Wu regained control of the company, removing another co-founder and largest shareholder of Mikri Jean. The latter declared his readiness to seek justice in court.

In addition, Bitmain itself is involved in several legal proceedings. Earlier this week, it was reported that Yang Zuoxing, a former lead chip developer at Bitmain who started his own mining company and has a long history of friction with his former employer, was arrested. According to the latest information, he is accused of embezzling $ 15,000.

Around the same time, reports emerged that a court in China had ordered a $ 680,000 freeze in the assets of Bitmain, which, like Ebang, was involved in a conflict over alleged non-fulfillment of contractual obligations..

All of this could make it difficult for Bitmain to hold an IPO until its current problems are resolved. At the same time, the current situation is beneficial for Canaan, which owns the largest and most liquid share directly related to the Bitcoin market..

Certain improvements are observed in the Bitcoin space itself from the perspective of decentralization. While the top three players continue to control 92% of the ASIC market, the focus has shifted from Bitmain to Canaan and Ebang over the past two years. The share of smaller market participants also fell.

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