Making money from the cryptocurrency market is not just about investing in Bitcoin or some altcoin. An excellent way to get exposure to cryptocurrencies is to invest in companies that service it. Currently, three companies, Bitmain Technologies, Canaan, and Ebang International Holdings, are preparing to go public in Hong Kong. All three are the largest makers of cryptocurrency mining equipment. However, the Initial Public Offerings (IPOs) will also put their founders in the spotlight.
Why Bitmain, Canaan, and Ebang are filing for IPO?
IPOs are a great way for companies to raise money. Also, it represents an opportunity for the top management and lower-level employees to nicely pad their net worth. For example, Microsoft’s IPO in 1986 created three billionaires and over 10,000 millionaires by 2000, according to The New York Times. Bitmain’s IPO is expected to raise around $3.0 billion, according to Bloomberg. According to people familiar with the matter, Bitmain’s last private funding round valued it at $15 billion. Co-founders Jihan Wu and Micree Zhan own around 60% of the company. Bitmain also holds some large Bitcoin mining communities, such as AntPool. AntPool mines around 25% of all blocks. It’s unclear if the public company will also include AntPool and other communities.
Bitmain, Canaan, and Ebang going public suggest that these companies are trying to take advantage of some of the hype that still surrounds the cryptocurrency industry. Listing their shares on an exchange would allow these companies to attract investors that are looking to get exposure to Bitcoin and other cryptocurrencies without the risks involved with actually holding them. As an example, there’s NVidia Corporation, whose GPUs mine Ethereum tokens. NVidia saw its stock grow handsomely last year as the company’s sales surged on the back of the demand for GPUs used for mining. Gil Luria, director of institutional equity research at D.A. Davidson & Co., was cited by Bloomberg as saying that investing in Bitmain, Canaan, and Ebang is like buying shovels and Levi’s jeans during the Gold Rush.
Public Scrutiny for Founders
However, the IPOs will also force Bitmain, Canaan, and Ebang to be more transparent. Companies will have to publicly disclose the information regarding their sales, profits and other assets that they own. Also, they will put in the public eye, the companies’ founders. Bitmain’s Jihan Wu, Canaan’s Zhang Nangeng, Liu Xiangfu and Li Jiaxuan, and Ebang’s Hu Dong will see their fortunes measured based on their respective stakes. Therefore, their fortunes will fluctuate as the stock moves up or down.
Therefore, given the volatile nature of the cryptocurrency industry, the fortunes of Bitmain, Canaan, and Ebang’s founders will be put to the test. Earlier this year, Mark Zuckerberg saw his net worth drop by almost $20 billion in a single day. Zuckerberg still had $63 billion left after that, but it’s unlikely that Wu, Nangeng, and others’ fortunes will be so resilient.
Risks and New Opportunities
Bitmain, Canaan, and Ebang’s IPOs come at a time of uncertainty. While Bitcoin and other cryptocurrencies had a great run in 2017, this year the crypto market is going through a downturn. If Bitmain, Canaan, and Ebang go public, their valuation is closely tied to any events happening in the crypto space. Therefore, any drop in Bitcoin or Ethereum will send the stocks lower.
However, the IPOs could signal that companies are preparing to deal with a potential drop in the price of crypto. There are many advantages and disadvantages to both public and private companies. One big advantage for public companies is that they can raise capital easier. They can either sell shares or bonds and have access to thousands of potential investors. The capital can fund R&D projects or possible expansion. If the prices of crypto drop and stay low, the industry of equipment manufacturers might go through consolidation. For example, Bitmain can acquire other makers of miners. This could allow it to offset the decline in sales from a drop in demand.
In addition, Bitmain, Canaan, and Ebang can use the proceeds from the IPO to explore new opportunities. Application-specific integrated circuits (ASICs), which these companies manufacture can find use in other areas. Because they contain a lot of computing power, they can be useful in artificial intelligence or machine learning. However, this is all just in theory for now. The companies still have to prove that their equipment is scalable. Recently, Bitman has released more information about its IPO.
