Three major Bitcoin mining machine manufacturers want to raise billions of dollars from Hong Kong IPOs

According to foreign media reports, the world's three largest bitcoin mining equipment manufacturers plan to raise billions of dollars through initial public offerings (IPOs) in Hong Kong, even though market data shows that demand for chips needed to make bitcoin has fallen sharply and the price of bitcoin has been cut in half.

A surge in cryptocurrency prices last year sparked a surge in demand for specialized mining chips and the development of "mining farms," ​​facilities equipped with thousands of machines that create bitcoins by solving complex math puzzles.

However, U.S. chipmaker Nvidia Corp said this month that its sales to cryptocurrency mining equipment makers in the second quarter were just $18 million, far below analysts' previous expectations of $100 million.

Nvidia Chief Financial Officer Colette Kress said she does not expect “any growth” in revenue from cryptocurrency in the coming months.

That has raised concerns about the upcoming listings in Hong Kong of three Chinese bitcoin mining equipment makers: Bitmain, Canaan Inc and Ebang International Holdings.

These companies all design high-end computer chips for mining cryptocurrencies, especially Bitcoin, and sell cryptocurrency mining equipment containing these chips. In addition, Bitmain mines cryptocurrencies itself. Companies like Nvidia also sell specialized chips for cryptocurrency mining equipment.

“Bitcoin prices have clearly fallen since the beginning of the year, which could weigh on investor interest in these companies,” said Benjamin Quinlan, CEO of financial services consulting firm Quinlan & Associates.

But he added: "Bitcoin prices have fallen from their peak, but the number of people mining bitcoin has not fallen proportionately."

Bitcoin is currently trading at $6,699, down 64 percent from its peak of $18,690 in December 2017. Daily bitcoin mining revenue is down 77 percent from December, according to data analytics and wallet provider Blockchain.info.

"As the price of bitcoin falls, the profitability of bitcoin mining itself is also falling, which reduces the demand for mining chips and miners," said Wang Leilei, a consultant at financial services consulting firm Kapronssia.

It’s not just bitcoin’s price that’s a concern. People familiar with the IPOs say regulatory scrutiny and a mixed performance for Hong Kong IPOs this year are another worry.

Julian Hosp, president of Singapore-based blockchain company TenX, also warned that if digital coins change their mining algorithms, machines designed to mine them would be rendered useless.

“I would be very cautious about investing in these mining machines,” Hosp said of the makers of such equipment. “They are not a long-term business, although I think they have momentum right now.”

Canaan Inc and Ebang International Holdings Inc submitted plans for listings in Hong Kong in May and June, respectively, while Bitmain is expected to submit an IPO plan next month to raise at least $3 billion, people familiar with the matter said.

Although cryptocurrency trading is a global activity, it was Chinese chipmakers that took the lead in developing the most efficient methods to mine these cryptocurrencies.

Analysts at market research firm Bernstein estimate that Bitmain last year held three-quarters of the market for specialized chips used to mine cryptocurrencies, followed by Canaan Inc with 14 percent.

Ebang International Holdings aims to raise $1 billion, while Canaan Inc is aiming to raise at least $400 million, according to the sources, lower than the $2 billion target reported earlier this year.

Ebang International Holdings is expected to face a review by Hong Kong's Listing Committee in September, but it may take Canaan Inc longer to get there. The Hong Kong Stock Exchange's Listing Committee is the main body in Hong Kong that screens IPOs. The committee is composed of professionals, including bankers, lawyers and investors, similar to the IPO Examination Committee of the China Securities Regulatory Commission.

Canaan Inc has not set a date for entering the Hong Kong listing committee process as it works to resolve questions from exchange officials about due diligence on its prospectus, two sources familiar with the company’s situation said.

A source close to Bitmain’s IPO said the company was aware of the potential for intense regulatory scrutiny.

Bitmain, Canaan Inc and Ebang International Holdings did not respond to requests for comment, while a spokesperson for the Hong Kong Stock Exchange declined to comment.

The slump in bitcoin prices is prompting these companies to be cautious about their IPOs as they look to promote other applications for their chips. Canaan Inc and Ebang International Holdings have both stressed the potential for their technology to be applied to other cutting-edge industries.

This includes the widespread development of blockchain applications, including the ledger system that underpins bitcoin, as well as artificial intelligence tools and the upcoming 5G telecommunications networks in and outside China.

“The Chinese government encourages chip design and production because it is part of the Chinese market, which has been blocked from abroad,” said Wang Leilei, a consultant at financial services consultancy Kapronssia.

"Bitmain and Canaan Inc chips can also be used for non-Bitcoin applications, such as blockchain, big data, network security or artificial intelligence." (Tianmenshan)