Bitcoin Mining and the Curious Case of Canaan Creative
May 22, 2018
Canaan Creative, a Chinese manufacturer and vendor of high-end bitcoin mining equipment, has filed an application to be listed on the Stock Exchange of Hong Kong (HKEX). Canaan has drawn significant backers for its IPO including Morgan Stanley, Deutsche Bank AG, and Credit Suisse Group AG. According to a report by the South China Morning Post, Canaan would be the first blockchain-related company to be listed on the Hong Kong Stock Exchange. Canaan is reportedly seeking to raise $1 billion in funding from its IPO which if reached, would mark the largest IPO ever for a cryptocurrency related company. Despite skepticism about investing in a cryptocurrency-based business, the exponential growth that Canaan Creative has experienced may be difficult for investors to disregard.
Revenues have risen tremendously at Canaan Creative within the past 2 years. In CY2017, Canaan generated $204 million in revenue, which marked a 3,000% Y/Y increase for the company compared to CY2016. Profitability at the firm has also increased significantly, rising to $56 million in 2017 (a 600% gain Y/Y). According to Coin telegraph, Canaan Creative currently controls 15% of the global Bitcoin mining hardware market. Although Canaan appears to be a potentially lucrative investment, there are hurdles that the company must first overcome.
Although there is excitement about Canaan Creative’s application to be listed on the Hong Kong Stock Exchange, this is not Canaan’s first attempt to go public. In 2016, Canaan attempted to acquire electric equipment maker Shandong Luyitong Intelligent Electric to gain access to Shenzhen Stock Exchange. The deal fell through after Chinese regulators questioned the validity of the deal, as it was viewed as highly overvalued. This past year, Canaan tried to skirt China’s ban on crypto trading and ICOs by applying for listing on China’s “New Third Board” market. The New Third Board is a marketplace for startups, for which the requirements of being listed are relatively relaxed. Canaan’s bid to be listed on the New Third Board was unsuccessful, for unspecified reasons.
If Canaan Creative were a company operating in almost any other field, it would likely be viewed as an investment with significant growth potential. The hesitancy and skepticism about investing in not only cryptocurrencies, but also the companies that operate in the crypto space, has skewed the external perception of Canaan. Based on traditional evaluation metrics, investors may seem to believe that Canaan represents a substantial wealth creation opportunity. Biases against cryptocurrencies, however, have resulted in Canaan struggling to become viewed as a legitimate investment option.
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