Trader View 20 November 2019

Canaan is expected to pin down a milestone as they become the first ASIC manufacturer to become a listed company tonight. 37 pages of Canaan’s F-1 filing was dedicated to outlaying reasons why the business could potentially flounder covering everything from customers refusing to make payment (to the tune of $22.3mn), heavy capital outlay, production facilities never having been approved by the relevant authorities, unlikely chance of any investor being able to pin them down, all the while kindly giving you a heads up of no plans to pay meaningful dividends anytime soon.

It is indeed the MO for these documents to layout every possible mishap to cover their tracks but all this as they award themselves a fat cashout just before the IPO… not cool.

ASIC manufacturers have definitely been feeling the pain as new players encroach market share and products become increasingly commoditized, but no way to dress this one up fellas.

The original lead manager Credit Suisse dropped them and the target raise appears to have been adjusted from $400mn to $110mn… Third time lucky?

It’s become an arms race of sorts as the ASICs manufacturers continue to overclock their rigs to the max. Whatsminer’s latest and greatest ASICs appear to be the most efficient on paper but allegedly heat up 10~15 degrees celsius more than their substitutes precisely because of this reason… unsustainable.

As the halvening approaches, the speculation re: price action has started to brew. Yes, technical analysis hinges on precedents (lots of them) but when you only have two in your sample it is not quite a Monte Carlo simulation.

Several market observers have resorted to the stock-to-flow ratio to downplay the likelihood of a pump, some point to the 342% move during 1H19 suggesting the circus has come and gone, while others have pointed to the scarcity factor as a potential catalyst to spur demand and thereby, price appreciation.

The way I see it, crypto is still a very retail-driven asset class and unless that picture drastically changes within the next six months, it is likely to see a rally of sorts as the consensus view is that we will and most retail investors follow the herd. A self-fulfilling prophecy of sorts.

But step back and figure this. Crypto is hailed as a paradigm-shifting monies immutable, not-dependent on third-party mediators and frictionless. If mining rewards continue to drop 50% every four years, how are the miners supposed to stay profitable?

It really hinges on a massive price appreciation — something that will at least offset all the happenings to come i.e. +200% every four years because the alternative is for transaction fees to skyrocket in which case users will simply move to other more efficient media of exchange.

While Bank of America has been wrecking havoc for the industry players by unilaterally shuttering (in some case 20yr relationships) bank accounts with no explanation, the Royal Bank of Canada seems to have taken the same page out of their playbook as they too have been militant in closing out fiat railways to anyone remotely connected to crypto. Initial reports of the latter launching their crypto exchange has been denied, no smoke from a chimney with no fire.

Northern Bitcoin (NB2 GR) & Whinston are the latest to come out with a gargantuan investment in the mining space as they look to set up 1GW worth of hash power by 4Q20. We’ve been hearing a lot about new mines propping up around the world al lot of them in significant sizes. Another point to note as profits directly correlate with the difficulty of the network which is essentially a product of the total hashpower devoted to cracking SHA-256. So the more computing power we see come online, the more difficult this business becomes… food for thought.

May the trend be your friend… Happy trading!