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Canaan Inc. has announced it will launch an IPO in July with the goal to raise $2 billion in funds in what would be the largest Bitcoin-related IPO to date.
Canaan to Launch Biggest Bitcoin IPO Ever
Bejing based Canaan inc., the worlds second largest Bitcoin mining hardware supplier increased its overall profits seven times in 2017 during the soaring Bitcoin price craze selling its products under the AvalonMiner brand. Since those halcyon days, the profitability of mining Bitcoin has steadily declined. Today Bitcoin is worth less than half of what it was in December 2017 and mining them is 60% less profitable.
This begs the question, why is this Bitcoin mining rig maker launching an IPO with a $2 billion goal when the profits of and demands for its products are in little demand? According to inside sources who spoke to Reuters about the move Canaan will present itself as a chip designer which focuses on artificial intelligence and blockchain technology development instead of a Bitcoin mining company.
“Their customers happen to be bitcoin miners. But they are a chip company, not a bitcoin company,” Said one of the unnamed sources Reuters spoke to.
Canaan produces what are known as ASIC chips designed for the singular purpose of mining Bitcoin. Its customers have historically been large-scale mining operations incorporating thousands of machines working twenty-four hours a day.
Ironically increasing competition since the development of ASIC mining rigs has hit the profit margins of mining outfits hard. Experts estimate that mining revenue in 2018 is just 37% of what it was in 2017. This downshift in mining profits led the worlds largest manufacturer of chips, Taiwan Semiconductor Manufacturing Corporation (TSMC), to cut it’s full-year sales target, citing uncertainty in the cryptocurrency market as its reason.
In a Mining Boom Sell Shovels
These same factors could be the reasons investors will buy into an IPO by Canaan, as the old adage goes the best way to make money in a gold rush is to sell shovels. A sentiment iterated by Jehan Chu, managing partner at Kenetic Capital, a Hong Kong-based blockchain and cryptocurrency investment firm who told Reuters,
“Investors are always looking for crypto ‘picks and shovels’, and that’s what this is,”
Though crypto mining has been under serious regulatory pressure by the Chinese government and earlier rumors of Canaan’s proposed IPO had the chip maker looking to Hong Kong or Singapore it seems they have gotten approval to go ahead in the country. Last month when China Securities Regulatory Commission vice-chairman Jiang Yang visited their factory and said publicly, “no matter what the chip is used for, fundamentally you’re still a chip company, and I hope you list in China,”
Image from Shutterstock
