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Canaan’s American IPO Is a $100 Million Bet on a Bitcoin Bull Market

Summary:
Mining giant Canaan Creative is set to launch its IPO later this month. The Avalon miner maker proceeds with its IPO despite massive devaluations. The company appears to be betting on a strong bull market, which would dramatically increase demand for mining equipment. Bitcoin mining is a delicate balance of these three factors: equipment efficiency, electricity costs, and bitcoin price. Miners often have control over the first two factors but they are at the mercy of the dominant cyptocurrency’s volatility. Fortunately for miners, there’s one event that can help them stay profitable. The bitcoin halving is a historically bullish event. The first time block rewards were halved was in 2012. Prices skyrocketed by 7,976 percent a year later. The second halving in 2016 drove the

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  • Mining giant Canaan Creative is set to launch its IPO later this month.
  • The Avalon miner maker proceeds with its IPO despite massive devaluations.
  • The company appears to be betting on a strong bull market, which would dramatically increase demand for mining equipment.

Bitcoin mining is a delicate balance of these three factors: equipment efficiency, electricity costs, and bitcoin price. Miners often have control over the first two factors but they are at the mercy of the dominant cyptocurrency’s volatility. Fortunately for miners, there’s one event that can help them stay profitable.

The bitcoin halving is a historically bullish event. The first time block rewards were halved was in 2012. Prices skyrocketed by 7,976 percent a year later. The second halving in 2016 drove the cryptocurrency to a 2,902 percent growth by the end of 2017. The third halving will take place in six months. It appears that Canaan Creative is positioning for the possible explosion of bitcoin by becoming a publicly-traded company later this month.

Canaan’s initial public offering (IPO) is scheduled on November 20 | Source: Twitter

The Chinese-based mining giant certainly picked an auspicious time to launch its IPO. Bitcoin is currently in a bull market while block mining difficulty is on a steady uptrend. This puts Canaan in a very good position to reap profits and increase its valuation in the coming months.

Canaan Forges on Even With Massive Pre-IPO Devaluation

The mining company suffered a huge blow a week before its IPO. According to industry insider Dovey Wan, the forecasted $100 million raise is significantly lower than the previously expected $200 million to $400 million range.

Canaan gets wrecked even before its first public trade | Source: Twitter

Nevertheless, Canaan proceeds with the IPO. They have momentum on their side considering that Chinese President Xi Jinping endorsed blockchain. This means that a ban on bitcoin mining is highly unlikely at this point. Chinese government documents support this view.

Earlier this year, China wanted to ban bitcoin mining. With the recent pivot, the National Development and Reform Commission deleted bitcoin mining and cryptocurrency mining from the list of industries that China should eliminate. This is a key development for Canaan as the Avalon miner maker relies heavily on the sales of mining machines to stay in business.

Blockchain products dominate the sales of Canaan | Source: Capital Watch

Another positive development for the mining company is the increasing difficulty to mine bitcoin. A week ago, difficulty dropped by 7 percent as some miners with lower-end rigs capitulate. Nevertheless, the trend is up and I expect that the difficulty will continue to rise even after the halving in May 2020.

Mining difficulty is in a strong uptrend | Source: Blockchain

This is good news for mining rig seller like Canaan. This means that more miners will likely continue joining the network. The scarcity of mining equipment is already being felt in China. Yahoo! reports that bitcoin miners are out of stock in China and prices are likely to increase.

Miners Betting on a Strong Bull Market

With the threat of a bitcoin mining ban virtually eliminated, Chinese miners face fewer risks. Taking into account cheap electricity, it appears that investing in equipment to mine the number one cryptocurrency is a smart business venture. The investment becomes even more attractive if you factor the possible price of bitcoin by the time of the third halving.

PlanB, a bitcoin quant analyst, uses the stock to flow ratio to predict the price of bitcoin. According to the analyst’s model, bitcoin’s market capitalization will skyrocket to $1 trillion after the halving in May 2020. This means that each bitcoin will be priced at $55,000.

I believe that PlanB’s stock to flow ratio is the most logically sound valuation of bitcoin | Source: Twitter

Even if you get half of this number by May 2020, those who buy efficient mining rigs now until that time will likely be sitting on profits. Whether miners are in profits or not, Canaan stands to make a killing. This is the mining giant’s $100 million bet.

Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.

This article was edited by Samburaj Das.

Last modified: November 14, 2019 15:17 UTC

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