Despite China’s general mistrust of cryptocurrencies and its typically negative stance towards them, the country has been instrumental in one aspect of the industry — crypto mining. Due to its cheap electricity, China has been the favorite location of crypto miners from all around the world. However, miners suffered from the bear market of 2018 just as much as investors, if not more, and that includes one of China’s own companies that started delving into the crypto space.
Chinese company damaged by the crypto winter
Huatie HengAn is a China-based construction firm that found the crypto sector extremely interesting, and very profitable. The firm decided to enter the crypto mining business, although it chose an unfortunate time to do so. When the crypto winter started in January 2018, the crypto prices started crashing down.
At the time, many thought it would be a temporary correction, caused by the fast growth of the coin’s prices. They were wrong, and Huatie HengAn had seen its valuation drop by a massive 90%. According to local reports, the company’s subsidiary, which had an estimated worth of $25 million, got sold for barely $2 due to the decline.
The reports also indicated that Huatie aimed to offer rental service of cloud computing server, which led to the purchase of around 36,500 units last year. The servers were purchased from Avalon and Ebang, which are actually crypto mining gear producers. Because of this, many assumed that the alleged ‘servers’ are actually mining hardware.
Unfortunately for the company, that was when the crypto market crashed, and the company’s investment dropped significantly. This development was unfortunate for the crypto industry, as well, but also for Chinese markets. Many believe that things could have gone a different way if Huatie HengAn managed to become the first listed firm in China to be fully engaged in the crypto business.
How much did the company actually lose?
As mentioned, estimations say that the company’s valuation went down by 90%. According to their financial report from December 31st, this is roughly around $14 million. Meanwhile, the crypto market itself lost around 700 billion in months to come, Huatie HengAn’s report also stated that the reported loss was more than 50% of the company’s original $25 million investment, as well as over 25% of its total revenue.
The situation did not improve in the first two months of 2019 either, as the firm’s loss increased to around $23 million, leaving only around $2 million of net assets.
It should be noted that the company never officially confirmed that the ‘servers’ are mining gear, or that they planned to start mining cryptocurrencies. However, considering the suppliers of the servers, and the fact that the company’s drop in value correlates with the decline of crypto prices, many have come to the conclusion that this was, in fact, the case.
Of course, Huatie is far from being the only company to suffer greatly due to the drop in crypto prices. Numerous companies felt the same, and some, such as Bitmain, Ebang, and Canaan did not have their IPO applications furthered by the HKEX due to the crypto industry’s volatility.
Even Nvidia, the manufacturer of GPUs that miners preferred to use, suffered great losses and became the worst performer on the S&P500 list in December. The company’s share price lost over 50%, dropping to only $21 from the initial $129. Meanwhile, a lot of miners left the industry, particularly those who mined Bitcoin, claiming that it was not profitable enough anymore, and that their expenses exceed their earnings.
These days, even the remaining miners might need to start searching for a new location, as China considers a proposal that calls for a ban on crypto mining. The proposal claims that the mining requires too much energy, and it will be under public consultation until May 7th of this year.