Breakingviews - Bitcoin mining IPO mirrors currency volatility

An attendant holds a bitcoin sign during the opening of Hong Kong's first bitcoin retail store February 28, 2014. REUTERS/Bobby Yip/File Photo

HONG KONG (Reuters Breakingviews) - It promises all the highs and lows of a real gold rush. Canaan, a Chinese company and the world’s second biggest maker of hardware used to mine bitcoin, has filed for an initial public offering in New York. It’s looking to raise $400 million, according to Reuters, after aborting two attempts to list elsewhere. But its financials and prospects look as volatile as the cryptocurrency itself.

The Hangzhou-based company, which sells equipment used to solve complex puzzles to uncover, or mine cryptocurrency, has had several recent false starts. It tried and failed to list in China through a reverse merger and allowed its application to debut in Hong Kong to lapse. In an effort to pay down debt and fund research, Canaan is now trying its luck stateside with Nasdaq even as the bourse tightens restrictions on the IPOs of small Chinese companies.

It’s a wild ride. Net revenue of 959 million yuan ($137 million) in the nine months to end September was less than half of the level it was at the same time a year earlier. Similarly, the bottom line, total comprehensive income, swung from a profit to a loss of 223 million yuan over the same period. That’s largely to do with volatility in bitcoin itself, whose price has swung to as high as nearly $20,000 and now trades below $8,800. That meant Canaan had to sell its mining hardware at a loss.

A price rebound would lift demand. A jump in prepayments to Taiwan’s TSMC, which makes chips for Canaan, also suggests the company is predicting a strong recovery in the second half, analyst Arun George of Global Equity Research reckons. Even so, there is substantial regulatory risk: Beijing cracked down on local cryptocurrency exchanges in 2017 and the state planner’s position on this niche activity remains uncertain. Any future restrictions would be a blow for Canaan, which derives almost 80% of its revenue in China, unless it can find new buyers elsewhere.

It all gives the IPO a whiff of desperation: Bitmain is in a similar position and has also now filed for a U.S. IPO, according to Refinitiv’s IFR. The latter has already, wisely, tempered its expectations, having earlier targeted a much larger mooted offer. The prospect of striking rich look fraught but mining was always about blood, sweat and tears.


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