Renowned for having invented the world’s first application-specific integrated circuit (ASIC)-powered Bitcoin mining machine, Canaan has announced its business’ first diversification attempt into crypto mining in Kazakhstan with their latest Avalon Miner units already in operation. The move, which goes beyond its existing business model as one of the largest crypto-mining machine manufacturers, is argued to be logical considering several factors.
These include the fact that the production and sales of mining machines and the prices of their underlying cryptocurrency are closely related; and the adverse impact that undue fluctuations in the price of mined cryptocurrencies e.g. Bitcoin can have on the revenue streams of mining hardware providers.
There is also the longer-term nature of manufacturing and production processes which, for its lead-times that tend to be more stretched out and could lead to a time lag between supply-side responses and changes in demand. The provider of supercomputing solutions identifies two extremes: for these idling resources or overly strained capacity. Hence, its decision to diversify into mining will help it to mitigate such operational risks and significantly improves the company’s “nimbleness and ability to navigate the rapidly evolving market conditions,” Canaan notes in a public statement.
“We believe that our self-operated Bitcoin mining business will help us improve our financial performance as well as expand our business scope and customer base,” its CEO, Nangeng Zhang, said. “As we integrate more industry resources into our operations, we believe this business segment will enable us to revitalize our mining machine inventory, shield us from Bitcoin volatility, and ensure our inventory sufficiency during market upturns”.
The world’s biggest cryptocurrency has lost more than 20% in the past six week alone as China intensified efforts to crackdown on crypto mining activities within its borders. A drop in the Bitcoin network hash rate – caused by more miners in China shutting down their machines – has been identified as a factor to the monumental price slump which has seen Bitcoin at half its April peak of almost $65,000. This explains Canaan’s mining moves at this time as the company takes advantage of the availability of their in-stock mining machines to be actively deployed in their mining operations to maximise computing power during a period of lull.
Among other things, the venture into Bitcoin mining stands to benefit Canaan from putting the processing capacity of older machines into use when market activity picks up and allows it to directly accumulate Bitcoin as a growing investable asset class. Canaan is not the first mining machine maker to seek business opportunities out of its existing model. In January, another top Chinese blockchain technology company with a strong ASIC chip design capability, Ebang, announced its plan to start a cryptocurrency exchange. The leading Bitcoin mining machine producer says its venturing into running a digital asset financial service platform is to expand into the upstream and the downstream of blockchain and cryptocurrency industry value chains.
Also, the Chinese holding company that once provides only marketing data, technology and solutions but later added crypto mining, took a similar step to run its own crypto exchange. Last month, SOS Limited, formerly known as China Rapid Finance Limited, says its U.S. and Canadian subsidiaries have obtained money services business (MSB) licenses to act as a dealer for foreign exchange as well as virtual currencies. The mutual promotion of mining and exchange businesses will provide us with multi-faceted experience and progress towards the commercialization of blockchain technology, SOS Ltd CEO, Yandai Wang, said in a public statement.