Canaan (CAN) Shares Nosedive, Mining Sales More Volatile than Bitcoin Price

  • Bitcoin miner maker Canaan shares plunge 43% in less than a month since listing
  • Canaan slowly seizing Bitmain’s market share while the latter having “power struggle” in top management
  • Canaan “should generate a significant loss in 2019” – BitMEX

By the looks of it, Chinese cryptocurrency mining ASIC manufacturer Canaan chose the wrong time to conduct its IPO. Since it’s share got listed on Nov. 20, it has lost 43% of its value. During this same period, Bitcoin’s price has been down over 8%.

With Bitmain, a dominant industry player failing to list last year, Canaan is the only significant entity to be listed from the space.

Canaan, one of the largest players in the space raised US$90 million in its IPO last month. Its shares were listed on Nasdaq with Citigroup as the lead underwriter.

Founded in 2013, this has been the company's second attempt at an IPO, after previously trying to be listed in Hong Kong last year.

However, it’s not only Canaan, the first Bitcoin mining giant to have an IPO, that has been making losses. In the last two year, there have been actually several tech-related IPOs like Uber, Lyft, Slack, Spotify, Pinterest, Beyond Meat, and Snapchat that has been making losses.

The loss-making IPOs have been reaching a record high, approaching 82% peak last seen in the 2000 bubble.

Mining ASIC sales More Volatile than BTC Price

Coming onto the earning’s part, Canaan generated significant earnings in the bull market from 2017 to Q1 2018 before record five quarters of consecutive losses.

Crypto derivatives exchange BitMEX in its report projects that Canaan “should generate a significant loss in 2019.”

Mining ASIC sales actually appear to be more volatile than BTC prices. Canaan sales dropped to $7 million in Q1 2019, down 96% YoY. Because mining farm operators' capital expenditures are highly impacted by the price of underlying cryptocurrency, they are dependent on external investors to finance new equipment purchases.

When it comes to mining equipment performance, it saw a decline in the rate of efficiency improvement in the last five years which coincided with a slowdown in the rate of improvements in computer chip technology.

Canaan Snatching Bitmain’s Market Share

In the last couple of years, Canaan has gained market share from Bitmain which is a positive sign from the Bitcoin decentralization perspective. However, the top three players now control 92% of the market as smaller players shrunk in size.

Bitmain has actually lost a “considerable” market share to Cannan and Ebang. While Bitmain’s share fell from 75% in 2017 to 65% in H1 2019, Canaan’s increased from 6% to 22%.

Despite being profitable in 2017 and 2018, Canaan did not have much operating cash flow generation. In comparison, Bitmain was more mature than Canaan as it generated a flow of $1.2 billion than the latter’s $14 million.

“Being able to generate and retain cash when times are good is crucial in this highly volatile industry.”

However, unlike Bitmain which may have spent about a billion dollars on Bitcoin Cash, Canaan hasn’t squandered much cash either, as such they should end the year with a strong balance sheet.

Moreover, Bitmain is having internal issues, a “power struggle” going on between co-founder and CEO Jihan Wu and fellow co-founder and largest shareholder Micree Zhan. Also, former Bitmain director Dr. Yang Zuoxing is reportedly under arrest on charges related to a dispute with Bitmain and embezzlement allegation.

Bitmain is also said to be suing Bitcoin’s largest mining pool, Poolin over a non-compete agreement with former employees. These issues can make it difficult for the company in its latest attempt at IPO.

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