Shanghai-based automotive trading service platform Cango Inc. (NYSE: CANG) announced last November that it was entering the cryptocurrency mining field, sparking curiosity among the public. The details of this transaction and Cango’s decision to bypass the domestic mining ban in China and invest in Bitcoin mining overseas have finally been explained recently by Cango officials.
Is China’s economic slowdown stimulating overseas expansion?
According to reports, the recent economic situation in China is not optimistic. First-tier cities such as Shanghai and Beijing have experienced a “deflationary phenomenon,” with average consumer spending showing negative growth of 14-18%. The situation is even worse in second-tier cities, causing turmoil in traditional industries that rely on domestic demand.
Cango’s latest financial report shows a significant decline in revenue from its traditional business. As of the third quarter of 2024, total revenue was only RMB 27 million (approximately $3.8 million), a decrease of 92.36% compared to RMB 3.536 billion in the same period in 2023. This may be the reason why Cango ultimately chose to operate in overseas markets and “escape from China.”
How to profit from Bitcoin mining from auto loans?
In a recent interview with CoinDesk, Juliet Ye, Director of Communications at Cango, stated that the market would be surprised by its entry into the Bitcoin mining industry, as no one had heard of Cango in this field before.
However, Cango’s history has been a history of adaptation and transformation. Since its establishment in 2010, we have undergone at least two or three business diversification transformations.
Previously, Cango mainly provided auto loan services to Chinese banks. However, even before entering Bitcoin mining, Cango had already begun diversifying its business. Firstly, Cango started promoting Chinese automobile exports to overseas markets and invested in Li Auto, a Chinese electric vehicle company. Subsequently, the company further ventured into the renewable energy field and explored high-performance projects related to artificial intelligence (AI). Finally, it entered the Bitcoin mining business.
Juliet Ye stated that Bitcoin mining is an effective way to balance energy grids:
Bitcoin miners can flexibly turn on or off mining equipment. For example, in Texas, the local government encourages miners to operate equipment when energy demand is low and pays for them to shut down during peak demand periods (such as heatwaves or storms) to stabilize the power grid load.
How do Chinese companies operate mining companies?
Although having a large computing power, Cango stated that it is still a newcomer to the field and is adapting to industry regulations and understanding taxation and market conditions. The main difference between Cango and other mining giants is that Cango currently does not operate its own mining equipment. Instead, it chooses to cooperate with Bitmain, utilizing its operational team to ensure smooth operations.
According to the press release at that time, these mining machines will not be deployed within the prohibited mining areas in China. Instead, Cango will take over the mining machines deployed by Bitmain in the United States through contracts.
An anonymous mining expert interviewed by Dynamic Zone also pointed out that this is usually a form of buying cloud computing power, but the ownership of the mining machines belongs to Cango, while the operation and mining entities are in the United States, managed by Bitmain.
This way, Chinese companies can bypass the legal risks of operating Bitcoin mining businesses since the actual Chinese company, Cango, may ultimately only receive foreign currency income from Bitmain’s mining operations. This allows Chinese companies to operate in the mining industry.
In the future, Cango plans to develop an internal mining team to make its Bitcoin mining business more economically efficient. As for how it will handle the mined bitcoins, Cango stated that there are no specific plans at the moment, but it does not rule out the possibility of selling based on market conditions. As of now, Cango has mined 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 is 30.4 EH/s, with a quarterly growth of 2%.
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 a year-to-date increase of over 362%. As of the time of this report, it is temporarily reported at $5.25, an increase of 84% compared to the stock price in early November.
Juliet Ye stated that this new mining strategy has made Cango the center of attention in the market.
As a small-to-medium-sized Chinese company listed in the United States, we have always had difficulty attracting external attention in the past. But now, suddenly, there is a lot of 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 machine 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 for $144 million through the issuance of common stock. Therefore, Cango has invested a total of $400 million to obtain 50 EH/s of computing power, making it one of the world’s largest mining companies.
The current Bitcoin computing power 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. According to data from TheMinerMag, as of November, MARA Holdings (MARA), the world’s largest listed mining company, 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.