China-based Canaan Creative, the world’s second-largest manufacturer of crypto mining hardware is considering to launch its IPO. According to the Bloomberg report, Canaan will launch its Initial Public Offering (IPO) in the United States, instead of China. People familiar with the matter said that the IPO launch will take place in New York in the first half of 2019.
However, the process for IPO filing is still in its early stage. In March 2018, Canaan also tried filing its IPO in Hong Kong in a bid to raise $1 billion from the market. However, the company’s Hong Kong Stock Exchange (HKEX) application lapsed in November 2018. Bloomberg says that the company has finally abandoned its plan for the Hong Kong launch. Giants like Credit Suisse, CMB International Capital, Deutsche Bank, and Morgan Stanley were the joint sponsors for Canaan’s IPO last year.
Convincing the Hong Kong regulators is a tough task for any cryptocurrency companies operating there. Last month, CoinSpeaker reported that the HKEX has also shunned down Bitmain‘s IPO proposal. The reason for the rejection was the high volatility of the crypto market.
A source close to the exchange operator said:
“The exchange is very hesitant to actually approve these bitcoin mining companies because the industry is so volatile. There’s a real risk that they could just not exist anymore in a year or two. The HKEX doesn’t want to be the first exchange in the world to approve this and have one die on them.”
Challenges Faced by the Crypto Mining Industry
The crypto mining industry is currently undergoing severe challenges after last year ended in a complete bear market. The cryptocurrency miners are facing a big hit on their profitability will the constantly dropping prices. As a result, many of the crypto mining operations had to even shut down their businesses.
In such case, bankers are raising doubts over the sustainability of even giant companies. They said:
With the bitcoin price dropping so much this year, there’s a lot of uncertainties over their business. If we cannot forecast their financials, how can we sell their IPOs?
Big companies like Nvidia are already facing the slow down which is visible in their quarterly results. Due to the overall industry slow down, Canaan has also cut down its IPO target from by a whopping 80% from earlier $2 billion to now just $400 million USD.
During the Bitmain IPO rejection, a source close to the Hong Kong regulators said:
It is premature for any cryptocurrency trading platform – or business associated with the industry – to raise funds through an IPO in Hong Kong before the proper regulatory framework is in place.
Thus, facing rejection from the Hong Kong regulators, Canaan is now targetting even bigger crypto market i.e. the United States. However, the U.S. regulatory agencies have also hinted their tough stand on dealing with crypto companies. Thus it is unlikely that these crypto mining companies can have an easy walkway through the U.S. regulators.