Three top developers of cryptocurrency technology are reportedly in the hope of raising billions of dollars by selling shares and thereby offering investors a new method to bet on digital currencies.
Cryptocurrencies are based on computer code in stark contrast to conventional currencies that are issued by the central banks of countries. For example, the processes called “mining” in which users solve increasingly complex math problems with computer algorithms to create bitcoin.
Offering for sale the high-tech parts and systems that power this mining is the business for china based firms Bitmain, Canaan and Ebang. They are the dominant forces in the business collectively.
But the industry that these three companies operate in is a young, unpredictable. These three companies are reportedly planning to launch IPOs in Hong Kong at a time that is not conducive for the market. The price of bitcoin is about two thirds of what it was last December – at around $20000. The fate of other cryptocurrencies like ethereum has been the same in recent time.
“If the market price of cryptocurrencies suddenly falls … demand for our mining hardware and cryptocurrency mining services will also drop rapidly,” Bitmain warned potential investors this week.
Added to it is the fact that the companies plan to launch the IPOs in the Hong Kong market which has entered a bear market this month with a drop of over 20% compared to the previous week over investor concerns on the US-China trade war.
The mining technology companies however have not made it clear their intended time of launch of IPOs and the amount of money they are hoping to raise. There were no comments from Bitmain. Canaan and Ebang.
“These firms might be looking to cash out before the market takes an even steeper nosedive,” said Benjamin Quinlan, founder of Hong Kong-based financial services consulting firm Quinlan & Associates.
He claims that despite recent setbacks, the mainstream finance market is slowly according greater acceptance to cryptocurrencies. He added that the revenues of the three mining companies are still on a growth path.
However there are some major challenges for the industry.
One of the most important ones is that the uncertainty about the manner in which virtual currencies would be governed by regulators and governments. Most crypto currency activities – including bitcoin, was banned in China last year.
Additionally, huge amounts of power is required by cryptocurrency miners for running their very high performance machines and computing equipment day and night. Higher tariffs targeted at such miners were recently imposed by some public utilities in the US.
“Increasing the cost of bitcoin mining will decrease the demand for mining equipment, hindering the performance of these companies,” Quinlan said.
And compared to earlier times, it is less attractive to mine for cryptocurrencies.
There is demand for technology that the companies are offering because of a boom in mining of bitcoin over the past year. But that also entails a lesser amount of the profits from mining as the profits would be distributed among a greater number of miners. That could hit future demand for mining equipment.
(Adapted from Money.CNN.com)