Shanghai-based automobile trading service platform Cango Inc. (NYSE: CANG) announced its entry into the Bitcoin mining business, investing $400 million to obtain a computing power of 50 EH/s, making it one of the world’s largest mining companies. Juliet Ye, the head of communications at Cango, stated in an interview with CoinDesk yesterday that this move aims to seek diversified sources of income.
Background:
Previously, it was reported that “18% of Ethiopia’s revenue comes from Bitcoin mining,” and the low-cost hydropower has become a paradise for mining companies. Additionally, Russia announced a ban on mining in 10 regions until 2031, fearing the strain on the power grid.
Shanghai-based automobile trading service platform Cango Inc. (NYSE: CANG) announced its entry into the cryptocurrency mining field in November last year, arousing curiosity from the public. The detailed information about this transaction and the reasons why Chinese companies choose to invest in Bitcoin mining overseas, bypassing the domestic mining ban, were finally explained recently.
Is China’s economic slowdown driving the move to overseas markets?
According to reports, the recent situation of China’s economy is not optimistic. First-tier cities such as Shanghai and Beijing have seen “deflationary phenomena” in their economic data, with average consumer spending showing negative growth of 14% to 18%. The situation in second-tier cities is even worse, causing turmoil in traditional industries that primarily rely on domestic demand.
Cango’s latest financial report shows a significant decline in its traditional business revenue. As of the third quarter of 2024, the total revenue was only RMB 27 million ($3.8 million), a 92.36% decrease compared to RMB 3.536 billion ($49.8 million) in the same period of 2023. This may be the reason why Cango ultimately chose to operate in overseas markets by “escaping from China.”
How to profit from Bitcoin mining starting from car loans?
Juliet Ye, the head of communications at Cango, stated in an interview with CoinDesk yesterday that the Bitcoin mining industry may be surprised because no one had heard of Cango before.
But Cango’s history is a history of adaptation and transformation. Since its establishment in 2010, we have undergone at least two or three business diversification transformations.
Cango used to mainly provide car loan services to Chinese banks, but it had already started diversifying its business before entering the Bitcoin mining industry. First, Cango started promoting Chinese car exports to overseas markets and invested in the Chinese electric vehicle sector, such as Li Auto. Subsequently, the company further ventured into the renewable energy sector and explored high-computing projects related to artificial intelligence (AI), ultimately entering the Bitcoin mining business.
Juliet Ye stated that Bitcoin mining is an effective way to balance energy grids:
Bitcoin miners can flexibly turn mining equipment on or off. For example, in Texas, the local government uses this feature to encourage miners to operate equipment when energy demand is low and pay for miners to shut down during peak demand periods (such as heatwaves or snowstorms) to stabilize the power grid load.
How do Chinese companies operate mining companies?
Although Cango has a large-scale computing power, the company states that it is still a newcomer to the field, adapting to industry regulations and understanding taxation and market conditions. Therefore, its main difference from other mining giants is that Cango currently does not operate its own mining equipment but chooses to cooperate with Bitmain, using its operational team to ensure smooth operations.
According to the news release at the time, these mining machines will not be deployed internally in China, where mining is prohibited, but will be taken over by Cango through contracts for the mining machines already deployed by Bitmain in the United States.
Experts in the field of anonymous mining that Dynamic Zone consulted stated that this is usually a form of buying fixed cloud computing power, but the ownership of the mining machines belongs to Cango, while the operations and mining entities are in the United States, managed by Bitmain:
This bypasses the legal risks for Chinese companies that are unable to operate Bitcoin mining businesses because, in practice, the Chinese company, Cango, may ultimately only receive overseas fiat currency income from Bitmain’s mining, making it possible for Chinese companies to operate in the mining industry.
Cango plans to cultivate an internal mining team in the future to make its Bitcoin mining business more economically efficient. Regarding how Cango will handle the mined bitcoins, the company states that there is no clear plan at the moment but does not rule out the possibility of selling them based on market conditions. As of now, Cango mined a total of 363.9 bitcoins in November and 569.9 bitcoins in December, increasing its bitcoin holdings to 933.8 bitcoins, valued at approximately $91.51 million. No bitcoins have been sold yet. The company’s average computing power reached 30.4 EH/s, a 2% increase from the previous quarter.
Stock price rises after entering mining
Cango’s stock price has risen due to its entry into Bitcoin mining. The company’s stock price closed at $4.56 in 2024, with an increase of over 362% since the beginning of the year. As of the time of writing, it temporarily reported $5.25, an 84% increase compared to the stock price at the beginning of November.
Juliet Ye stated that this new mining strategy has made Cango a focus of market attention.
As a small and medium-sized Chinese company listed in the United States, we have always had difficulty attracting attention from the outside world. But now, suddenly, many people have shown great interest in Cango, and the discussions about the company are unprecedented.
Becoming one of the world’s largest mining companies
According to a recent report by TheMinerMag, Cango initially purchased 32 EH/s of computing power from Bitcoin mining equipment manufacturer Bitmain for $256 million in cash and agreed to acquire an additional 18 EH/s of computing power from Golden TechGen and other entities through the issuance of $144 million worth of common stock. Therefore, Cango has invested $400 million to obtain a computing power of 50 EH/s, making it one of the world’s largest mining companies.
The current computing power of Bitcoin is hovering around 753.11 EH/s, which means that once Cango’s 50 EH/s is fully operational, it will provide approximately 6.6% of the computing power behind Bitcoin. In comparison, according to data from TheMinerMag, as of November, the world’s largest listed mining company, MARA Holdings (MARA), had slightly over 47 EH/s of computing power, followed by CleanSpark (CLSK) and Riot Platforms (RIOT), with computing powers of 32 EH/s and 26 EH/s, respectively.