In what has been seen by many as a travesty of sorts, major cryptocurrency equipment manufacturer Canaan Creative has seen its stock decline sharply in the past 17 out of 21 trading sessions. Sources indicate that Canaan’s stock hasn’t fared well as many would have hoped. Just to remind you, the company at its IPO was valued at $1.3 billion. The company’s stock has lost about 35% of its value this week.
Since the late November shares have tumbled indicating that the company wasn’t as valuable as everyone in the crypto space had hoped. Many investors have long considered Canaan to be a barometer for everything happening as regards cryptocurrency miners. But having share prices as low as $5 has demonstrated that with the fall in Bitcoin prices and the rise in hash rates, the cryptocurrency mining community may have issues going forward.
The rise in hash rates and a subsequent increase in mining difficulty rates have led many within the crypto space to believe that cryptocurrency miners may have to sell off their assets in the mid-term till cryptocurrency prices stabilize. Sources further indicate the relationship between Bitcoin prices and the current share prices of Canaan Inc.
Canaan $CAN printed a possible reversal after a halving in post-IPO price; of particular note given the context, a day of market-wide weakness in crypto.
Would not be surprised if, as with gold miners relative to gold, miner equity is leveraged exposure to Bitcoin price. pic.twitter.com/WBKfKd4AMr
— light (@LightCrypto) December 17, 2019
There has been no major coverage of Canaan’s stock from Wall Street Brokerages and this has made many traders use alternative data sources such as hash rate to be able to determine quantitative models for profit.
Cryptocurrency hash rates refer to the amount of computing power required for the formations of blocks on the blockchain. Recent data has indicated that the Bitcoin blockchain’s hash rate was about 90 exahashes per second which is a little lower than the all-time high of 100 exahashes per second and far from the 40 exahashes per second that was available at the start of the year.
Many in the crypto space believe that the rise in the hash rate coincides with Bitcoin prices which rose to $13,000 when miners thought that a major rally was in the works. The reverse was the case however and prices fell leading many to believe that excess hashing power exists on the Bitcoin blockchain and hence recent evidence suggests that there are no purchases of new mining rigs.
It’s also worth mentioning that Bitmain may be leading the pack because its Antminers S9 were a profit center for the manufacturer. Sources have indicated though that the popularity of the S9 is fading fast and Bitmain has slashed prices of its top-selling miners. This already puts Bitmain in direct competition with Canaan as Bitmains top miner (S17+), priced at $1,930 has a capacity of 73 terahashes per second with a power efficiency of 40 joules per terahash.
Canaan’s AvalonMiner A1166-68T (which is coming in February) priced at $1,978 has a production capacity of 68 terahashes per second with an efficiency of 47 joules per terahash. Higher power efficiencies mean higher operating costs and as such less demand which is more trouble for Canaan after higher operating costs and lower revenue streams including certain corporate governance issues as well.
So, while investors may not consider these basic tenets of sound investment as a measure for building the right model, Canaan Inc. has a lot on its plate to handle before it can return to profitability.
Christopher Haruna Hamman is a Freelance content developer, Crypto-Enthusiast and tech-savvy individual. He is also a Superstar Content Developer, Strategy Demigod, and Standup Guy.