What is preventing mining machine companies from listing on the Hong Kong Stock Exchange?

On Tuesday, Bitmain, a well-known cryptocurrency mining machine manufacturer, mentioned in an internal letter that its IPO application had failed to be listed on the Hong Kong Stock Exchange. The IPO application had expired but there was still no response from the Hong Kong Stock Exchange. In September 2018, the company submitted its application materials to the Hong Kong Stock Exchange. However, after half a year of waiting, the application did not receive any response and expired on March 26.

According to BlockBeats, people familiar with the IPO said the delay in the Hong Kong Stock Exchange's approval had little to do with the decline in financial figures, but was directly related to the overall instability and lack of regulation in the cryptocurrency market.

Previously, the listing applications submitted by domestic mining machine companies Canaan Creative and Ebang International were both invalidated, which was largely related to the opinions of regulators and the huge market fluctuations at the time.

Despite the obstacles in listing, many mining machine companies have not stopped their business. Facing the upcoming flood season, a large number of mining machine companies, including Bitmain, are preparing to move their mining machines to the southwest region to take advantage of the low prices there to prepare for the upcoming battle of computing power.

The mining machine company's dream of going public has been shattered

In November 2018, Reuters reported that Canaan Creative and Ebang International would not be able to complete their IPOs in Hong Kong this year. Both companies are well-known digital cryptocurrency mining machine companies in China, Canaan Creative is known for its "Avalon Miner" and Ebang International is known for its "Ebit Miner".

Six months ago, the two companies submitted their Hong Kong IPO applications, but Canaan Inc. was reportedly unable to pass the review because the Hong Kong Stock Exchange had many questions about Canaan Inc.'s business model and prospects. Ebang International's failure was due to its involvement in an illegal fundraising case and a P2P fund transfer scandal, which led to its suspension by the Hong Kong Stock Exchange. Bitmain, which submitted its application later, also repeated the "submit-wait-fail" process.

In mid-December 2018, news broke that the Hong Kong Stock Exchange was unwilling to approve Bitmain’s IPO. On December 20, the South China Morning Post learned from sources that Hong Kong’s stock market regulators and operators said they were unwilling to approve its IPO until an appropriate regulatory framework was in place. Until March 26, the application was completely invalid.

At this point, the mining machine company’s dream of going public was completely shattered.

Why was the listing of the mining machine company rejected by the Hong Kong Stock Exchange? Coindesk, a well-known foreign blockchain media, previously stated that regulators believe that the volatility of the digital cryptocurrency industry is too high and it is impossible to determine whether this market will continue to exist in the next 1-2 years. Because there are questions about the suitability of listing and continued operation, the Hong Kong Stock Exchange cannot accept Bitmain's listing on the Hong Kong Stock Exchange.

Yesterday, when BlockBeats consulted analysts, it received the following response: "It is not in line with the style of the Hong Kong Stock Exchange to delay the review, mainly because there is no suitable framework to accommodate mining machine companies. The Hong Kong Stock Exchange's regulatory authorities are still taking a wait-and-see attitude towards the digital cryptocurrency market, and the United States has been slow to set an example, causing other markets that rely on the SEC's opinions to not dare to act rashly."

However, analysts also pointed out that Bitmain’s temporary inability to go public may not be a bad thing. “Based on the current situation, even if it is successfully listed, it will encounter multiple rounds of price drops. No prospective listed company is willing to bleed in exchange for stock market trading qualifications.”

The Hong Kong Stock Exchange has been "broken"

The blockchain concept stocks in 2017-2018 may have almost "ruined" the Hong Kong Stock Exchange, causing regulators to have a lot of resistance to mining machine companies.

In February 2018, Pingshan Tea, a company listed on the Hong Kong Stock Exchange, changed its name to "Blockchain Group". This company was listed on the Hong Kong Stock Exchange in 2002. Its main businesses are raw tea and refined tea. After the name change, it directly focuses on the blockchain industry. This tea-selling listed company suffered losses from 2016 to 2018. Coupled with the pressure of debt maturity, the company faced the risk of being liquidated and delisted, forcing Pingshan Tea to change its name to Blockchain Group and transform itself into a hot concept stock.

The market is always irrational. When the renamed Blockchain Group resumed trading, its share price soared 1,300% and became a penny stock on the Hong Kong Stock Exchange. However, nine months later, the Blockchain Group announced that the company was ordered to be liquidated by the Hong Kong High Court and its shares were suspended from trading.

At this point, the farce of this blockchain group that was trying to take advantage of the popularity was ended with a "period" by the regulators.

However, investors who try to enter the mainstream capital market with the gimmick of blockchain have not stopped their capital operation. In August last year, Li Lin, chairman of Huobi Exchange, acquired the Hong Kong Stock Exchange junk stock "Tongcheng Holdings" for HK$600 million, making this company, which mainly deals in LED lights and electronic and electrical products, a "shell" for Huobi to be listed on the securities market in the future, because the electronic product business can be quickly separated from the shell company.

In January this year, Xu Mingxing, founder of OKEx Exchange, acquired 60.49% of the voting rights of Hong Kong Stock Exchange Qianjin Holdings through an over-the-counter acquisition. Qianjin Holdings is a company engaged in foundation engineering-related businesses, including piling construction, reinforced concrete, equipment leasing, etc., and successfully acquired the company through a backdoor listing.

The concepts of blockchain and digital encrypted assets have entered the traditional capital field in various ways, leaving the Hong Kong Stock Exchange in a dilemma. If no restrictions are imposed, blockchain financial services are likely to penetrate rapidly, and more companies will "save the country in a roundabout way" through backdoor listings and other means in the future. It cannot be ruled out that mining machine companies may use similar means to go public in a roundabout way in the future.

The Hong Kong Stock Exchange needs a suitable and referenceable rule to reasonably control the companies that have been listed and are waiting for listing approval. Its important reference is the US SEC. However, the US SEC, which has always been known for its strictness and prudence, has made very slow progress. Digital cryptocurrencies are divided into four agencies, each with its own responsibilities. The SEC is responsible for ICO and STO, the CFTC is responsible for market manipulation, FinCEN is responsible for anti-money laundering, and OFAC is responsible for overseas corporate management. Cai Kailong, former chief strategic manager of Huobi, once said that the current strategy of US regulators can be summarized as: pay close attention, wait for legislation, collect evidence, and strengthen management.

To put it simply, it means: there are too many departments involved, the efficiency is low, and so on.

Market mutation is the biggest obstacle for mining machine companies to go public

On January 25 this year, Hong Kong Exchanges and Clearing Limited (HKEX) Chairman Charles Li Xiaojia stated at the World Economic Forum in Davos that companies listed on the HKEX need to meet the core principle of "listing suitability", that is, mining machine companies need to meet these conditions to obtain listing approval.

Li Xiaojia explained the principle of listing suitability as follows: "For IPOs, the core principle of the Hong Kong Stock Exchange is suitability for listing. Is the business model introduced by the proposed listed company to investors suitable for listing? For example, in the past, it made billions of dollars through business A, but suddenly said that it would do business B in the future, but there is no performance yet. Or the business model of B is better, then I think the business model of A that you used for listing is not sustainable. Another thing is that the regulators did not care before, but later began to care. Then can you still do this business and make this money?"

Obviously, the business of mining machine companies lacks this sustainability, or in other words, in a market where the price of Bitcoin has plummeted, this business that relies on selling mining machines or mining with mining machines cannot be sustained.

In 2018, we experienced the tragic drop of Bitcoin from $20,000 to $3,000. For mining machine companies, the drop in the price of coins means that the mining machines cannot be sold, and the income of the digital cryptocurrency mining pool invested by the mining machine companies will also plummet. Take Bitmain as an example. The digital cryptocurrency it holds is included in the company's assets. The drop in the price of coins means asset impairment.

Moreover, if the development of new mining chips fails, it means that they will not be able to compete in the market for a long time in the future and their business will not be sustainable. In addition, factors such as global uninterrupted transactions, global market supervision, and pyramid schemes are all making the concept of blockchain dim.

In this case, the Hong Kong Stock Exchange rejected all mining machine companies, which was actually a helpless move to protect the interests of investors and its own interests. On the other side of the ocean, the SEC did not give a final conclusion.

The US SEC tried to use the traditional financial regulatory framework to constrain blockchain finance business, but it is obvious that this decentralized blockchain finance that everyone can participate in is difficult to integrate with the existing framework. Due to security disputes, lack of liquidity, and susceptibility to manipulation, the SEC has been continuously delaying or rejecting Bitcoin ETF funds submitted by financial institutions since last summer.

If we discuss the possibility of mining machine companies going public based on the logic of business sustainability, only when the price of coins can remain stable or rise steadily over a long period of time can mining machine companies meet this core principle. After all, the listing service agencies that serve the three mining machine companies are professional.

Now, the only thing that needs to be solved is the sluggish bear market sentiment, but the coin price cannot skyrocket like it did in 2017.

Just last weekend, Bakkt, which received billions of dollars in investment, received good news that the US CFTC is stepping up the approval of Bitcoin futures. At the same time, since the beginning of 2019, the price of Bitcoin has steadily risen to $4,000, the market atmosphere is good, and the atmosphere of fear has improved significantly.

So, if the price of the currency goes back to normal, will the mining machine companies resubmit their information?