As Bitcoin prices soar, Chinese blockchain companies are on a fundraising spree

As Bitcoin prices soar, Chinese blockchain companies are on a fundraising spree

Source: NetEase Technology Report

March 9, 2020: The recent surge in bitcoin prices has prompted a surge in funding for Chinese companies seeking to expand their cryptocurrency businesses or enter the industry.

The boom in cryptocurrencies has been fueled by surging prices and signs of growing acceptance by mainstream institutions.

Ebang International, a Chinese bitcoin mining machine manufacturer that went public on the Nasdaq in June, raised a total of $170 million in two rounds of funding in February alone. Also last month, solid waste recycling company Codechain Newland raised $25 million through a rights issue to fund its foray into bitcoin mining.

In the private placement market, “competition is becoming increasingly fierce, with every high-quality financing round being oversubscribed within a week of being announced,” said Zhu Jiehan, managing partner of Kenetic Capital, a Hong Kong-based blockchain venture capital firm.

Despite the Chinese government's mixed attitude toward cryptocurrencies, the market is still booming. Blockchain technology has received official support from China and is the basis for cryptocurrencies such as Bitcoin, as well as the key to innovation in areas such as trade finance, supply chain management and anti-counterfeiting. Investors say this has led to more attractive cryptocurrency projects in China, although many companies still choose to list and raise funds overseas.

Ebang International plans to use its newly raised capital to expand into cryptocurrency mining, open cryptocurrency exchanges in Singapore and Canada, and launch a bitcoin trading platform similar to brokerage Robinhood.

“Ebang’s growth story is very attractive to institutional investors,” said Guo Yi, chief operating officer of Univest Securities, which underwrote the deals and has helped raise funds for several other Chinese cryptocurrency companies. “Funding has become busier for all industry players, thanks to the surge in bitcoin prices.”

Canaan, another Chinese bitcoin mining machine maker listed on the Nasdaq, is also moving into “mining,” where powerful computers are used to verify bitcoin transactions and generate associated revenue.

Bitcoin is now the world's most valuable cryptocurrency, and its price has surged more than 300% since the fourth quarter of last year. "The surge in bitcoin prices has provided us with a unique opportunity to build a mining business," said Feng Weidong, co-CEO of CodeChain Newland, which has ordered 10,000 bitcoin mining machines.

The rush by Chinese companies into the cryptocurrency space comes as Coinbase, the largest U.S. cryptocurrency exchange, filed last month to list on the Nasdaq. Regulatory approval would be a landmark victory for cryptocurrency advocates seeking mainstream acceptance.

“Everyone can feel the euphoria in the market, and Coinbase’s listing will further boost market sentiment,” said Jiang Changhao, co-founder and chief technology officer of Beijing-based cryptocurrency custody and wallet service provider Cobo.

Cobo plans to launch a new round of venture capital this month, aiming to raise tens of millions of dollars to fund international expansion. "Our business is growing very, very fast because of the bullish market," Jiang said.

Kenetic Capital’s Zhu Jiehan believes that China’s official support for blockchain technology and its use in major initiatives by giants such as Ping An and Ant Group are a factor in the rise in the number of high-quality blockchain and cryptocurrency projects in China. But he said the recent surge in cryptocurrency prices has “added fuel to the fire” of competition in the industry.

Still, some Chinese companies’ forays into cryptocurrency have surprised investors. Last month, short sellers Hindenburg Research and Culper Research accused Chinese blockchain company SOS of fabricating a cryptocurrency business, an allegation the latter dismissed as “distorted, misleading and without factual basis.”

Guo Yi, chief operating officer of Wantong Securities, said the market has a zero-tolerance attitude towards fraud, but there is nothing wrong with Chinese companies joining the bitcoin craze. "If people don't point the finger at Tesla CEO Elon Musk for supporting bitcoin, then what's wrong with Chinese companies accepting bitcoin?" he said.