Two Chinese bitcoin mining equipment makers are set to test equity investors’ faith in the cryptocurrency’s long-term future, with plans to raise up to US$1bn each in the world’s largest bitcoin-focused IPOs to-date.

Canaan applied to the Stock Exchange of Hong Kong last week for a listing while Zhejiang Ebang Communication has started working with advisers on a Hong Kong float, according to people familiar with both deals.

Although the price of bitcoin has tumbled by 35% this year and Beijing has tightened its grip on trade in the virtual currency, equipment makers are still hungry for capital to fund growth and to meet still robust demand for their machines.

At US$1bn apiece, each IPO would dwarf other known listings for cryptocurrency-related firms.

Canaan declined to comment. Ebang did not return emails or calls seeking comment.

Both companies ditched China’s National Equities Exchange and Quotations, also known as the New Third Board, for Hong Kong listings after China toughened its stance on cryptocurrencies.

“China doesn’t say it won’t allow cryptocurrency-related companies to raise funds but the understanding is the regulators will take the approvals slowly,” said a banker working on one of the deals.

Last August, Canaan applied to list on the New Third Board, the biggest over-the-counter equity exchange in the country. The company, however, withdrew its application after Chinese regulators late last year banned initial coin offerings, shut down local cryptocurrency trading exchanges and limited bitcoin mining.

Ebang, meanwhile, delisted from the New Third Board this year after announcing in January that it would seek a Hong Kong listing.

VALUATION QUESTION

Canaan was the world’s second-biggest maker of bitcoin mining hardware in terms of shipment of system products in 2017 with a market share of about 19.5%, according to research house Frost & Sullivan.

The company’s revenue jumped 314% to Rmb1.3bn (US$204m) in 2017, while profit soared 587% to Rmb361m.

While Canaan has enjoyed rapid growth in the past few years, its business will be at huge risk if blockchain technology cannot gain wide market acceptance or if bitcoin is replaced by other cryptocurrencies.

“If bitcoin is replaced by other cryptocurrencies, we will lose the market for our bitcoin mining system products. More generally, if the market for cryptocurrencies does not develop, our industry may cease to exist,” Canaan says in its IPO filing.

The lack of listed comparables and fluctuating prices of cryptocurrencies are expected to make it hard to value Canaan.

“Canaan was valued at about US$500m around a year ago. The IPO size could go up to US$2bn assuming the company is selling 25% at a US$8bn valuation,” said a person close to the deal. “We have no idea what valuation the market can take at this moment as there is no comparables and there is huge volatility in bitcoin prices.”

To increase its product mix, Canaan says it is developing mining gear for a cryptocurrency other than bitcoin and expects mass production of the new product in the fourth quarter. It has already received pre-sale orders of more than Rmb54m.

Jianping Kong, co-chairman of Canaan, also said in a Reuters interview last month that he expected China’s push to promote its domestic chip industry to help drive growth for the company.

NO COMPARABLES

While many companies promote links to bitcoin and, more commonly, blockchain – the distributed ledger technology that underpins bitcoin – few that focus on the cryptocurrency have listed publicly.

In Australia, DigitalBTC went public via a backdoor listing in 2014 when it merged with Macro Energy, an investing group, in a deal which raised A$9.1m (US$6.8m). The company later changed its name to DigitalX and switched its focus from bitcoin to financial technology software.

Another miner, Bitcoin Group, withdrew its Sydney listing plans in 2016 after the local regulator questioned whether it would have sufficient working capital to be a going concern.

In Canada, Leeta Gold, a mineral exploration company, renamed itself Hive Blockchain last summer and partnered with Hong Kong-based Genesis Mining on a bitcoin mining facility in Iceland. It has a market capitalisation of US$333m.

Credit Suisse, CMB International, Deutsche Bank and Morgan Stanley are joint sponsors for Canaan’s float.

Bitcoin mining equipment makers make computers with special chips that mine the coins more efficiently than more mainstream chips made by companies such as Intel.