PE-backed bitcoin mining company files for US IPO

The company raised $43.5 million in 2017 from investors including Shanghai Baopu Investment, Hangzhou Tunlan Investment, and Hangzhou Jinjiang Group. The three investors took a 9% stake, according to AVCJ research.

Canaan’s IPO application came several days after Chinese President Xi Jinping publicly encouraged blockchain technology development, causing a spike in the stock prices of blockchain-linked companies. However, bitcoin transactions are still forbidden in the country.

Founded in 2013, Canaan was the first company to produce cryptocurrency mining machines incorporating a technology called application-specific integrated circuits (ASIC). It enables customization for specific uses, thereby delivering greater computing power and efficiency.

The company is now leveraging its ASIC expertise to manufacture chips used in edge computing. A Frost & Sullivan report projects that ASIC edge artificial intelligence (AI) chips will have a 41% market share by 2023, up from 21% in 2018.

The company claims to be the second-largest designer and manufacturer of bitcoin mining machines globally. The devices it sold in the first half of 2019 accounted for 21.9% of the combined computing power of all machines sold globally.

However, market share is no guarantee of financial performance. In the first half of 2019, Canaan's revenue decreased 85% year-on-year to RMB289 million ($41 million) due to the drop in bitcoin prices. The company recorded a net loss of RMB 331 million.

While revenue rose 106% to RMB2.7 billion in 2018, this was more than offset by a 212% increase in costs. As a result, net income fell 67% year-on-year to RMB122 million.

“As the bitcoin price fluctuates, we may adjust the selling price of bitcoin mining machines on a weekly basis, as customers are only willing to pay for machines based on their ability to recover their investment through mining bitcoins over a relatively short period of time,” the IPO prospectus explains.

AI chips may offer greater stability, but it is still early days. Deliveries started in September 2018 and revenue came to RMB275,200 in the first three months. The total for the first half of 2019 was RMB467,700. However, this amounts to just 0.2% of overall revenue, with sales of bitcoin mining machines amounting to more than 99%.

Bitmain, another major player in the bitcoin mining industry, pulled the plug on a Hong Kong IPO in March. The company suffers from the same bitcoin price volatility as Canaan, though the impact was exacerbated by its substantial cryptocurrency holdings.

 

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