Canaan Diversifies Business by Becoming a Bitcoin Miner In Kazakhstan

Major producer of Bitcoin (BTC) mining equipment Canaan announced it has moved beyond its existing business model and into becoming miners themselves, as “the logical next step” towards optimizing their revenues, strengthening the inventory management and supply chain capabilities, as well as accumulating BTC.

Canaan is “driving their own crypto-mining business in Kazakhstan with their latest Avalon Miner units already in operation,” the company said in the emailed press release today. This way, they are “delivering on their 2021 strategic plans announced earlier this year.”

As for the reasons behind this move, one is that it will enable Canaan to directly accumulate BTC which is “now widely accepted as an investable asset class, and thus has the potential for considerable upside for Canaan.”

Furthermore, Nangeng Zhang, Canaan's Chairman and CEO, said that the team believes their self-operated Bitcoin mining business would help improve the company's financial performance, but also expand the business scope and their customer base.

As reported early this month, Canaan reached a total net revenue of USD 61.5m in the first quarter (Q1) of this year, lower than the USD 68.3m of Q1 2020, but higher than the USD 38.2m of Q4 2020. Their net income was USD 200,000, whereas the company had registered losses both in Q1 and Q4 of 2020.

Zhang further stated that, “as we integrate more industry resources into our operations, we believe this business segment will enable us to revitalize our mining machine inventory, shield us from Bitcoin volatility, and ensure our inventory sufficiency during market upturns”.

Per the company, typically, the production and sales of mining machines have been closely connected to the prices of the underlying crypto, such as BTC, and excessive fluctuations in that price can result in excessive volatility in the revenue streams of mining hardware providers.

Now, to this is added “the longer-term nature of manufacturing and production processes,” so it's common for there to be a time lag between supply-side responses and changes in demand, which tend to lead to one of the two extremes: idling resources or overly strained capacity.

“The diversification into mining then, not only mitigates such operational risks, but also significantly improves Canaans nimbleness and ability to navigate the rapidly evolving market conditions,” the company said.

When there's a “lull” in the market, the mining business will benefit from the availability of their in-stock mining machines to be actively deployed in their mining operations at low electricity rates, maximising their computing power at that time, they said. And when the market activity is elevated, it'll benefit from putting in use the processing capacity of their older machines.

“The net result will be a considerable improvement in inventory planning and supply chain optimization throughout the year and unaffected by the price of Bitcoin,” they said.

Additionally, Canaan recently opened their first overseas Service Center in Kazakhstan.