Journalist: Star Chang, Jason Lu | Editor: April Cho
In tandem with its rising influence on the global economy, China has begun to dominate the mining hardware market for cryptocurrencies. In this article, we look at why and how three Chinese companies have taken the lead in a nascent bitcoin industry. We find that among the Chinese companies dominating the market for bitcoin mining hardware, Bitmain has emerged as a clear winner.
Leading Companies in a Rapidly Expanding Chinese Bitcoin Market
The sudden demand for cryptocurrencies to the tune of a 5% price premium in mainland China was partly encouraged by people looking for ways to bypass the state authority’s heavy handed monitoring. In fear of losing foreign capital, the Chinese government has tightened its regulations on international monetary transfer between accounts. In some radical cases, parents could not find ways to transfer tuition to their kids studying abroad.
Simultaneously, the abundance of cheap water and electric supply in a few western provinces become the perfect base of cryptocurrency mining.
It is estimated that around 80% of Bitcoin’s computing power can be attributed to China’s contribution.
As such, the the local demand for cryptocurrencies mining hardware become massive. The Sichuan province, for example, has abundant hydroelectric power because of its terrain. The province can provide electricity for only 5 cent USD per kW - nearly 3/4 of the standard national price.
Bitmain, a pioneer company founded in 2013, was quick to pick up on this trend. The company established businesses across mining hardware, mining pool, and cloud mining. Some other competitors include Canaan Creative, which was also established in the same year as well as Ebang. Ebang’s business was originally based on telecommunication products before entering the emerging market for cryptocurrencies.
Bitmain, Canaan Creative and Ebang
Bitmain’s Revenue is 7 times that of Canaan Creative and Ebang Combined, and also has the lowest R&D to sales ratio. The latter two companies share more similarity in scales and product line with each other than the industry leader bitmain. These three companies are now believed to outweigh all the other competitors and have taken more than 90% of the global market share for cryptocurrency mining.
The companies’ early entrance to the market are sure to return high rewards.. According to the IPO prospectus, Bitmain’s revenue has skyrocketed from 0.14, 0.28, to 2.5 billion USD from 2015 to 2017. Although Bitmain achieved a record 808% growth, Bitmain’s profitability in 2018 is even more stunning: their total revenues in the first two quarters of 2018 have already exceeded their earnings from 2017. Canaan Creative and Ebang also hit their record high revenue of 188 and 144 million USD as well as growth rates of 315% and 715 %, respectively.
In 2015, while Bitmain announced 43 million USD as its net income, Canaan Creative netted 210k USD. In the same year, Ebang ranked a close second, earning roughly 2.8 million USD of net income.
However, In 2016, the earnings for these three companies soared. Bitmain’s net income reached 112 million, Canaan Creative reached 7.5 million and Ebang 1.4 million USD. Bitmain is still leading at a staggering profit margin of 41%. Canaan Creative has a profit margin of 16%. Ebang’s profit margin shrank from 26% in 2015 to 9% in 2016. In 2017, Bitmain’s earning grew 6 times and reached 687 million. Cannan Creative increased 7 times to 52.1 million. Ebang grew a 55 times to 55.6 million and raised its profit margins to 39%. Currently, due to technological developments and maturity of its business model, profit margins for those three companies have remained steady at 25%.
Besides securing the profitability of their ventures, these giant manufacturers have also maintain expanded their R&D expenses along with their rising profit margins. From 2015 to 2017, R&D costs increased 17 fold for Bitmain ($4.3m to $72m), 20 fold for Canaan Creative ($722k to $14.4), and 5.3 fold for Ebang ($1.58m to $8.3m). Even though Bitmain spent the most on R&D in absolute amount, but R&D ratio the lowest among three with only 2.9%.
Going forward, all three bitcoin mining giants filed for IPO with Stock Exchange of Hong Kong in the past few months. Bitmain aims to raise $3 billion. Ebang is aiming at raising $1 billion, while Canaan targets $400 million.
However, the recent bear market casts uncertainties over the IPOs. Investors are also wary about the transferability of mining chips to other consensus algorithms and other use cases. Both Canaan and Ebang highlighted the potential of their products in addition to bitcoin mining. Bitmain also emphasized AI applications and blockchain project investments. Bitmain has invested in AICHAIN, Block.one, Circle, and 12 other companies that are related to blockchain infrastructure technologies and electronic payment.
