Bitcoin’s big stock market debut is coming at a bad time. Three of the world’s top makers of cryptocurrency technology are planning to sell shares, giving investors a new way to bet on digital currencies. They’re reportedly hoping to raise billions of dollars. Unlike the dollar or the euro, which are issued by central banks, cryptocurrencies are based on computer code. Bitcoin, for example, is created and traded through the “mining” process in which computer algorithms solve increasingly complex math problems. Bitmain, Canaan, and Ebang, which are all based in China, make money by selling the high-tech parts and systems that power this mining. Together, they dominate the business.
But the three companies operate in a young, unpredictable industry and are planning their IPOs in Hong Kong in brutal market conditions. The price of bitcoin, which soared to nearly $20,000 in December, has since plunged by about two-thirds. Other cryptocurrencies like ethereum have plummeted, too. Bitmain, the world’s biggest maker of bitcoin mining technology, warned potential investors this week that if the market price of cryptocurrencies suddenly falls, demand for their mining hardware and cryptocurrency mining services will also drop rapidly.
Hong Kong’s stock market, where the companies plan to list, entered a bear market this month, having plunged more than 20% from its previous peak because of concerns about China’s economic slowdown and trade war with the United States. The mining technology companies haven’t said when exactly they plan to go public or how much they’re seeking to raise. Benjamin Quinlan, founder of Hong Kong-based financial services consulting firm Quinlan & Associates, said that these firms might be looking to cash out before the market takes an even steeper nosedive.
The industry faces major challenges, especially in how governments go about regulating digital currencies. China banned most activities involving bitcoin last year, although it is still home to a significant number of cryptocurrency mining operations. Authorities have been trying to push them out as cryptocurrency miners need huge amounts of electricity to run their rooms full of computing equipment around the clock.
Cryptocurrency mining is already less lucrative than it used to be as bitcoin mining activity has increased over the past year, spreading profits more thinly across a greater number of users. Bitmain, Canaan, and Ebang were all profitable in their most recent financial year, according to documents setting out their intention to go public. But staying profitable will be a massive challenge, according to Leilei Wang, a Shanghai-based consultant at research firm Kapronasia.
The companies are aware of the risks they face and are trying to adapt by increasing investments in more advanced chip technology that can be used in areas like artificial intelligence, cybersecurity, and connected devices. Chinese companies are still reliant on foreign chip technology, especially from the United States, despite the Chinese government’s tough stance on cryptocurrencies.
The fate of these cryptocurrency mining companies is tied to the wider industry, as cryptocurrencies will likely fall out of favor without greater mainstream adoption in the near future. However, bitcoin bulls are still hopeful that the currency can stage a recovery as financial exchanges and big companies start to take it more seriously. Mike Novogratz, CEO of cryptocurrency investment firm Galaxy Digital, told CNN that as more people become comfortable with bitcoin, it feels like it’s going to go up.