Canaan Faces Challenges Amid Bitcoin Bull Run

Canaan Inc., a leading crypto mining machine manufacturer, has reported a significant decline in revenue despite the recent surge in Bitcoin prices. In the first quarter of 2024, Canaan’s revenue dropped 36% year-on-year to $35 million. This paradoxical outcome highlights the challenges faced by the company amid the latest cryptocurrency bull run, according to Benzinga.

Bitcoin prices have doubled over the past six months, reaching an all-time high in March. However, a key factor behind the rally, the Bitcoin “halving” event in April, has reduced the incentive for mining. 

As a result, Canaan’s sales of mining equipment have significantly declined. The company has experienced a drop in both sequential and year-on-year sales, as miners reduce their purchases due to decreased profitability. The costs of mining machines have also risen, making them less attractive to miners.

Canaan’s own mining operations received a temporary boost from a change in accounting rules for digital assets. By adopting the Financial Accounting Standards Board’s new requirements early, the company recorded a valuation gain of $33.6 million related to its Bitcoin holdings. This gain offset its operating loss, narrowing the net loss for the quarter.

Looking ahead, high interest rates pose another challenge. Many miners finance their equipment purchases with borrowed funds, which are currently expensive due to high interest rates. This financial burden may delay equipment purchases until interest rates fall.

Canaan’s shares have dropped over 80% since its IPO in 2019 and have lost more than half their value this year. The company’s CEO and CFO have pledged to buy at least $2 million of shares with personal funds to bolster stock prices. Additionally, Canaan is diversifying into AI chip manufacturing to reduce its reliance on the crypto industry.