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Canaan in Q2 Gains as Bitmain Extends 30% Reward for Miners 

The unaudited financial results of Canaan show its three months ending June 30 saw the China-based chip producer generate revenue of RMB1,652.7 million (US$246.7 million). The record represents an increase of 21.9% from RMB1,356.1 million in Q1 2022 and an increase of 52.8% from RMB1,081.8 million in the same period (Q2) of 2021.

Gross profit was RMB929.7 million (US$138.8 million), representing an increase of 12.0% from RMB829.8 million in the first quarter of 2022 and an increase of 117.3% from RMB427.9 million in the same period of 2021.

Canaan’s Q2 financial highlights cover a period when the crypto winter is supposedly in effect and Bitcoin price devastated. According to Luxor Mining, a provider of industry-related analysis and hash rate insights, the Bitcoin price drop in the first two quarters of 2022 was quite visible. It led to application-specific integrated circuit (ASIC) mining hash price dropping below $0.13/TH/day at some point – a return to post-China mining ban level. 

This week’s release of Canaan’s records coincides with its main rival, Bitmain, launching a reward coupon program to incentivize buyers of its products. Bitmain had in July announced a reward coupon program for customers who purchased standard Long-term Agreements (LTAs) from February to June 2021 and paid up in full for delivery batches in or before July 2022. They are to get a 30% reduction in their total orders. 

The new coupon program will cater for customers who have LTAs from July to August 2021 and have made 100% payment for delivery in or before July 2022 without any cancellations. Bitmain’s coupon move was a response to manage its customers’ plight. There have been reports of a selling pressure on the manufacturer’s ASIC machines in the secondary market which has led to a plummet in miners’ prices to yearly lows. JPMorgan also reported that the cost of electricity for mining Bitcoin fell from about $24,000 in early June to about $13,000 to reduce miners’ profit as well as the pressure to sell their Bitcoin. 

The palliative measure could have been necessitated by claims that the drop in the prices of Bitmain mining machines somewhat added to the woes of troubled crypto lending firm, Celsius Network, which recently filed for bankruptcy.

Celsius operated one of the largest crypto mining enterprises in the US and sought to expand it at the time to generate a greater yield. Filing documents show that the company’s purchase of Bitmain machines added to its accumulated debts as prices of top cryptocurrencies dipped. Celsius incurred a $1.3 billion shortfall in its balance sheet, as a result, hence the bear market and investment in Bitmain’s miners changed its plans.

Canaan has not come up with a similar move for its customer so far and going by its CFO, Mr. James Jin Cheng, it may not be necessary. Cheng noted that as the Bitcoin price decreased in Q2, they  “responsively lowered our product price for spot sales to shoulder the pressure with our clients.” however, wafer price stays high on the cost front so they expect their gross margin to decrease dramatically in the second half of 2022, he added.

He attributed the Q2 performance to increased computing power sold, and the relatively high average selling price from Q1 contract sales. According to the Q2 report, Canaan’s total computing power sale increased by 27.5% – from 4.3 million Thash/s in Q1 to 5.5 million Thash/s though still a decrease of 7.7% from 5.9 million Thash/s in the same period last year – as of the end of June.

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