Canaan used the "Bogus" deal to draw investments, analyst analyst

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A report from Marcus Aurelius Worth, an evaluation group, states that the Nasdaq-listed ASIC producer Canaan (NASDAQ: CAN) misrepresented its potential income for 2020. Not less than certainly one of its prospects is an alleged associated get together that’s unable to meet the $ 150 million buy contract.

Aurelius Worth additionally considers Canaan & # 39; s AvalonMiner collection as non-competitive on the ASIC market and notes that the R&D funds of the producer is enormously inferior to opponents resembling Bitmain.

After February 20 report, the analysts have thought-about the corporate's inventory uninvestable and revealed that they’ve entered into brief positions.

Canaan representatives responded to some claims after a number of investigations at Cointelegraph. Aurelius Worth, in flip, didn’t reply to Cointelegraph's questions on methodology – however we now have however discovered that among the analysts' conclusions aren’t totally appropriate.

Alleged irregularities at prospects

The core argument of the analysts in opposition to Canaan lies in what she claims to be a really irregular transaction with regard to November 27 first public offer.

A "strategic partnership" was concluded with Hong Kong Trade-listed firm Grandshores (HK 1647) a month earlier than the IPO, which might permit the corporate to buy gear for as much as $ 150 million.

This transaction exhibits numerous irregularities, in accordance with Aurelius Worth. That one order would characterize virtually the whole Canaan gross sales within the final twelve months, which was $ 177 million. Moreover, they declare that Grandshores has no strategy to fulfill the settlement, just about the market capitalization of $ 50 million and a money stability of $ 16 million.

Essentially the most putting is that Grandshores is a associated get together with Canaan. Hong Kong Inventory Trade deposits acknowledged Yao Yongjie as chairman, whereas Canaan & # 39; s Securities and Trade Fee deposits reveal that Yao Yongjie is a accomplice at an organization that holds 9.7% of Canaan's shares. A Reuters profile additional mentions Yongjie as an angel investor in Canaan.

Canaan & # 39; s gross sales director Chen Feng held a livestream shortly earlier than the deal was concluded, he promised that Canaan had letters of intent for greater than 500,000 models, anticipating a turnover of greater than $ 1 billion by 2020.

The analysts concluded their argument:

"We due to this fact ponder whether the large declaration of intent from Grandshores, which we regard as largely faux, was utilized by CAN as a tool to create monetary views for traders."

From a regulatory perspective, if the analysts' conclusion is appropriate, it’s not together with this as a transaction with a associated get together within the Canaan IPO deposits dated after October 27 also can have penalties. Firms are required by legislation to report transactions with entities with which their shareholders or executives have relationships in quarterly and annual studies with the SEC.

Canaan representatives responded to Cointelegraph's request for touch upon this transaction. They claimed that Yao Yongjie just isn’t the proprietor of the corporate that’s within the information and that he owns lower than 1% of Canaan's shares.

In addition they pressured that the Grandshores contract just isn’t a proper gross sales contract. The representatives defined:

"It’s a framework settlement between two events that Canaan Grandshores has granted as a distributor and permits it to resell not more than $ 150 million miners."

The alleged casual nature of the contract was additionally cited as the rationale for not together with it within the SEC prospectus, allegedly "to stop deception and to guard our IPO traders," the representatives stated.

Cointelegraph contacted the legislation agency answerable for the IPO for additional clarification, however acquired no reply.

Based on the analysts, Canaan's prospects talked about in earlier Canaan makes an attempt in 2016 and 2017 confirmed a number of irregularities.

Unhealthy product and enterprise mannequin

Aurelius Worth concluded its evaluation by reporting noticed shortcomings with Canaan's enterprise mannequin and product line. Based on SEC requests, the corporate began providing credit score gross sales when the market fell in 2018, which says that "our prospects who purchased our Bitcoin mining merchandise on credit score have been much less keen to make funds." Furthermore, Canaan was concerned in a single lawsuit for a failed cost of an bill of $ 1.7 million. The analysts famous:

"Not less than we imagine that the autumn in Bitcoin costs that started on the finish of 2017 has had a devastating impression on CAN's enterprise."

Aurelius Worth additionally argued that Canaan miners are under no circumstances aggressive available in the market and report web site knowledge asicminervalue.com. They declare that Canaan's enterprise mannequin is "the other way up" as a result of all my miners simply generate revenue with a loss.

Nonetheless, this conclusion was drawn with the assistance of normal settings on the aggregator web site, on account of which the electrical energy value was $ 0.12 per kilowatt hour (KWh). Few mining actions would ever be worthwhile at these charges – a lot of the exercise is concentrated in particular areas the place low cost electrical energy might be discovered. An instance of that is Quebec, the place prices can go as much as 0.05 Candian {dollars} ($ 0.037).

Beneath these circumstances, Canaan miners might be worthwhile, though they’re typically much less environment friendly when it comes to hashes per watt ratio. Though the decrease effectivity might finally make them pointless, Canaan miners are sometimes less expensive than comparable affords from Bitmain.

For instance, utilizing electrical energy costs of $ 0.04, Canaan & # 39; s AvalonMiner 1066 generates an estimated $ 1,600 annual revenue, whereas it prices round $ 1,500. Bitmain & # 39; s S17 + would yield round $ 3,000 at present charges, however the common value is round $ 2,850. The 2 miners would due to this fact want the identical period of time to pay for themselves.

Though Aurelius Worth raises essential questions relating to the profitability of Canaan ASIC's, the miners are nonetheless aggressive below no less than some circumstances. However, the ASIC mining trade in a broader sense is below monumental stress from the Bitcoin (BTC) halve. Allegedly Bitmain laid off 50% of its employees put together for the abrupt dip in mining revenues.

Unclear gross sales practices and the character of the mining trade might point out the next funding threat than conventional markets can be used to just accept.

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