Mining machine manufacturer Ebang International intends to establish a trading platform to connect the "mining circle" industry chain

Original title: "Ebang International intends to establish an exchange to strengthen the positioning of water sellers in the "mining circle""

Original source: Hong Kong Stock Exchange, Tiger Brokers

In recent years, the market has shown growing interest in blockchain. As of December 31, 2019, there were 5,035 cryptocurrencies in circulation with a total market value of approximately $193.4 billion, up 48.5% from approximately $130.2 billion as of December 31, 2018. Bitcoin, the largest cryptocurrency, accounted for approximately 68.2% of the market value of all cryptocurrencies, or approximately $131.9 billion, as of December 31, 2019.

As one of the most basic forms of the digital currency industry, mining has always been in demand, especially Bitcoin mining, which is the focus of the "mining circle". Since there are "miners" who mine, there are "water sellers" - mining machine manufacturers.

The global bitcoin mining machine market is dominated by four major bitcoin mining machine manufacturers, all of which are Chinese companies, and Ebang International is one of them. As a mining machine giant, Ebang International submitted a prospectus to the U.S. Securities and Exchange Commission (SEC) on April 24 and is expected to complete its IPO in June with the code "EBON".

Company Profile

Ebang International's total revenue in 2018 and 2019 was US$319 million and US$109 million, respectively, and its net losses were US$11.81 million and US$41.07 million, respectively.

Ebang International's main business is the production and sales of Bitcoin mining machines, and its mining machine ASIC chip design capability is its core competitiveness.

Ebang is one of the first mining machine manufacturers in the industry to use 10 nm ASIC chips for commercial use. Currently, Ebang will soon launch 8nm and 7nm chip mining machines, and 5nm ASIC chips are also under development.

Of course, mining is not limited to Bitcoin now. Ebang International also plans to apply its self-developed technology to non-Bitcoin fields, such as Litecoin, Monero, etc.

In addition to manufacturing and selling mining machines, Ebang also provides mining machine hosting services. In 2019, Ebang's mining machine hosting service revenue was US$15.728 million, a year-on-year increase of 104.5%, accounting for 14.4% of total revenue, and the proportion was 2.4% in 2018.

Most of the mining machines managed by Ebang International come from the mining machines it sells. Its mining machine sales and mining machine management form a closed loop, which will bring a certain degree of convenience to "miners" and also expand its own business scope. As we all know, the sales of mining machines are related to the market of Bitcoin. When Bitcoin soars, the demand for mining machines is strong. On the contrary, the sales of mining machines are relatively sluggish. The mining machine management business is relatively stable. Ebang International's expansion of the mining machine management business has also reduced the volatility of the company's performance to a certain extent.

In addition, Ebang International also mentioned the establishment of a digital currency trading platform in its prospectus. From mining machine manufacturing to mining machine hosting to digital currency trading platform, Ebang International has been closely focusing on the role of "water seller" to expand upstream and downstream businesses. At the same time, the establishment of a digital currency trading platform can also cope with industry and policy fluctuations, and the income generated by the future trading platform business can also smooth performance fluctuations.

Industry Status

The industry chain of the digital currency "mining circle" is mainly divided into three parts: upstream mining machine manufacturing, midstream mining, and downstream digital currency trading. Ebang International is in the upstream mining machine manufacturing, and after setting up a trading platform in the future, Ebang International will also enter the downstream business.

The core of mining machine manufacturing is the IC design of ASIC chips. The demand and selling price of mining machines are affected by the price fluctuations of digital currencies. Take Bitcoin as an example. When the price of Bitcoin rises, it attracts more and more "miners" to participate in mining activities, so the demand for mining machines increases, and at the same time, the price of mining machines will also rise.

On the contrary, when the price of Bitcoin falls, the attractiveness of mining decreases, the number of "miners" participating in mining decreases, and the demand for mining machines also decreases. Therefore, the price of mining machines is strongly correlated with the price fluctuations of Bitcoin.

Source: Ebang International IPO prospectus

According to a report by Frost & Sullivan, global sales of Bitcoin mining machines grew at a compound annual growth rate of 61.3% from 2015 to 2019, surging from approximately US$200 million in 2015 to approximately US$1.4 billion in 2019, and are expected to further grow at a compound annual growth rate of 24.8% in the next five years to US$4.3 billion in 2024.

Source: Ebang International IPO prospectus

Therefore, the demand for mining machines maintains long-term growth but short-term fluctuations.

Reviews

In 2016, the production of Bitcoin was halved. In 2017, Bitcoin experienced a wave of spectacular market. Bitcoin was being discussed on the streets and alleys, and blockchain technology was also being tried in different fields. Mining, as the underlying foundation of digital currency, naturally entered a period of vigorous development. For a time, the demand for mining machines surged, and Shenzhen's Huaqiangbei also changed from a computer city to a mining machine city, which also gave rise to four major mining machine manufacturers, and Ebang International was one of the giants.

Although Bitcoin later fell back and demand for mining machines was hindered, Ebang International continued to deepen its "mining circle" related businesses, increased its mining machine hosting business, and will enter the digital currency trading platform business in the future. These business expansions can expand the company's circle of competence and smooth out the impact of cyclical fluctuations caused by digital currency price fluctuations.

Looking at the longer term, the application of blockchain is becoming more and more widespread, and the long-term demand logic of mining machines remains unchanged. In 2020, the production of Bitcoin will be reduced by half a year again. The price of Bitcoin has risen by more than 30% this year, reaching $9,000 again. Will the demand for mining machines explode again? We will wait and see.

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