After three failures, the dream finally came true. Why was Canaan Creative able to successfully IPO?

On October 10, a screenshot of a certain Daxinbao APP circulated online showed that Canaan Creative, the world's leading mining machine manufacturer, will be listed in the United States in mid-November, intending to issue 126 million new shares with a valuation of US$1.5 billion. Subsequently, multiple media outlets confirmed the authenticity of the news. Although Canaan Creative officials did not comment on the details, it was almost equivalent to tacitly agreeing, which may also indicate that Canaan Creative will become the first mining machine manufacturer to successfully go public.

Canaan Creative had previously attempted to enter the capital market three times in June 2016, August 2017, and May 2018, but all failed. The successful listing on Nasdaq this time has undoubtedly boosted the morale of the industry, and entering the traditional capital market has also laid the foundation for its long-term development.

Stricter regulation is bound to hit a wall in China

For a long time, mining machine manufacturers have had an extremely difficult road to listing due to their inseparable relationship with cryptocurrencies.

In June 2016, Canaan Creative attempted to achieve a "reverse listing" by using Luyitong Electric, a company listed on the Shenzhen Stock Exchange's Growth Enterprise Market, but was stopped by the Shenzhen Stock Exchange.

In August 2017, Canaan Creative once again sought to be listed on the New Third Board, but unfortunately encountered the September 4th incident, and the official attitude became stricter. In October and November of that year, Canaan Creative also received four consecutive inquiries from the stock transfer company, all of which were asked about the impact of the policy environment and the company's ability to continue operating. But in the end, Canaan Creative took the initiative to give up listing in March of the following year.

In May 2018, Canaan Creative once again entered the Hong Kong market and formally submitted its IPO application to the Hong Kong Stock Exchange on May 15. However, six months later, the Hong Kong Stock Exchange's official website classified Canaan Creative's listing application as "invalid", which means that its listing journey has failed again.

The Hong Kong Stock Exchange applications of the other two of the three major mining machine manufacturers, Bitmain and Ebang International, also ultimately "failed" like Canaan Creative.

Hong Kong Exchanges and Clearing Limited (HKEX) Chief Executive Officer Charles Li responded to the IPO of the three major mining machine manufacturers, saying, “You made billions of dollars through business A in the past, but suddenly said you wanted to do business B in the future, but you don’t have any results yet. Then I feel that the business model A that you used to go public is no longer sustainable. Can you still do this business and make this money?” He also said that whether it is the mining machine business or the artificial intelligence business, the three cryptocurrency mining machine manufacturers, including Bitmain, cannot meet the “listing adaptability” requirement.

Earlier, foreign media quoted sources as saying that the Hong Kong Stock Exchange hesitated to approve Bitmain's IPO application because the industry is very unstable and there are many risks in reality, although these risks may not appear in one or two years. The Hong Kong Stock Exchange does not want to be the first exchange in the world to approve such a company to go public.

The country remains cautious about such companies, which means that mining machine manufacturers will inevitably encounter obstacles in their domestic IPOs.

Look outside for opportunities and inside for ideas

After the three major mining machine manufacturers failed in the country, they went abroad to look for opportunities.

In June this year, Bloomberg revealed that Bitmain will resume its IPO plan and submit listing documents to the US Securities and Exchange Commission (SEC) as early as next month, with a financing target of US$300 million to US$500 million. In this regard, Bitmain declined to comment. According to Jiemian News, Bitmain completed a large-scale round of employee option contract signing at the end of June, which may also indicate that Bitmain is getting closer to listing in the United States.

Also in June this year, IFR ASIA, a subsidiary of Reuters, reported that after the second failed listing on the Hong Kong Stock Exchange in June last year, Ebang International, a Bitcoin mining machine manufacturer, was considering listing in the US market. This means that the three mining machine manufacturers that tried to list on the Hong Kong main board in 2018 all have plans to go public in the United States. At this time, Canaan Creative was the first to successfully go public in the United States.

For these companies, there will always be differences among senior management in the choice of the company's development direction, which is crucial both for their own development and for the purpose of seeking an IPO.

Let's take Bitmain as an example. At the end of 2018, Bitmain was in constant crisis, with a loss of $500 million in the third quarter. Negative news such as large-scale layoffs, closure of mines and overseas offices followed one after another. At the same time, there were rumors that the two co-CEOs had disagreements. It was rumored that Wu Jihan was more interested in developing new mining machines, focusing on Bitcoin Cash and developing blockchain, while Zhan Ketuan hoped to develop in the field of AI. However, both parties resigned, and Wang Haichao eventually became the company's CEO in 2019, and sent an internal letter from Bitmain in March, stating that the company's development direction would focus on digital currency and artificial intelligence chips and products and services based on them.

The same is true for Canaan Creative. On February 12, 2019, Coindesk quoted insiders as saying that major shareholder Liu Xiangfu had left his daily management position and no longer served as an executive board member of Canaan Inc., the holding company of Canaan Creative, because Liu Xiangfu had differences with the company's overall strategic development.

Liu Xiangfu, who has a background in computer technology, believes that in the blockchain industry, hardware and software cannot be completely separated. As a company that produces mining machines, it cannot completely separate itself from the mining farm and mining pool business.

Canaan's management hopes to continue to build the company into a manufacturer focused on cryptocurrency mining and artificial intelligence chips. Canaan itself does not mine or operate mining pools, and the leadership hopes to maintain this status in order to better achieve an IPO.

When interviewed by the media on related issues, an insider of Canaan Creative responded: "The facts are basically as the media said. Liu Xiangfu is indeed slowly fading out of the company's management."

Liu Xiangfu's withdrawal from the management team means that Canaan Creative may basically follow the development strategy of the management team and have no direct relationship with the cryptocurrency business. This move may become the key to its successful IPO in the United States.

Nasdaq's positive attitude

Nasdaq's positive attitude towards blockchain and cryptocurrency is also a relevant factor.

In a recent interview with Yahoo Finance, Nasdaq CEO Adena Friedman answered the question "Is cryptocurrency an enemy or a friend of Nasdaq?" Friedman's answer was "neither". She believes that this is a very interesting innovation, and the technical basis of blockchain is very interesting. Nasdaq is integrating blockchain into many elements of its trading infrastructure to prepare for new markets.

As for cryptocurrency itself, Friedman believes that this is a manifestation of blockchain technology and that cryptocurrency is still a very young invention. Friedman also stressed the need to figure out the true purpose of cryptocurrency and how to use this technological innovation to create a better way to transfer funds, so that the global economy can run faster and better. Friedman finally said that there are real opportunities in the field of blockchain and cryptocurrency.

In September of this year, Nasdaq also added a new index - DeFix (abbreviated as DEFX) to track the crypto asset market and decentralized financing (DeFi), reflecting real-time information of projects such as Augur, Maker and 0x.

Blockchain and cryptocurrency are innovations as well as opportunities, and Canaan Creative’s listing on the Nasdaq is a brand new beginning!