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Huatie HengAn, a Chinese construction company (and a subsidiary of Huatie) that shifted to crypto mining, was recently sold for only $2 million after having a valuation of $25 million last year, according to Chinese crypto media outlet 8BTC. But what caused this 90% plunge in value?
Huatie HengAn was originally a construction company before it decided to try its hand in the crypto space. Huatie HengAn apparently purchased 36,500 “servers” or hardware units from Canaan and Ebang, two of the biggest cryptocurrency hardware manufacturers in the world. While these hardware item purchases were listed as servers by Huatie HengAn, Canaan and Ebang don’t actually sell them servers, but rather cryptocurrency mining hardware, which led people to believe that Huatie HengAn was attempting to switch to cryptocurrency mining from construction. This has not been confirmed by Huatie HengAn.
In December 2018, Huatie’s end of the year financial report showed total losses of $14 million for the Huatie HengAn subsidiary firm. By February 2019, the figure had starkly risen to a loss of $23 million. It seems that following this revelation Huatie decided to sell Huatie HengAn for $2 million and cut its losses.
The crypto winter (perhaps now we can call it autumn) we have been experiencing is likely the cause of the difficulties Huatie HengAn faced in getting their operation off the ground. Cryptocurrency mining can be expensive since it requires huge amounts of power, because of this efficiency is key. The crypto winter has been particularly harsh on crypto startups. Coindesk surveyed 66 crypto startups and of the 40 that responded, the majority admitted that they have experienced hardships over the crypto winter and are cautious about funding and hiring moving forward. While Huatie HengAn isn’t really a crypto start-up, the same stressors are applying here as well.
Not only is the equipment expensive when starting up a new crypto mining operation, but the power is also expensive, and the reward for successfully mining blocks is less than it used to be for Bitcoin. In 2009 when Bitcoin was created, miners would receive 50 Bitcoins per bock; however, this amount is halved every 210,000 blocks or about every four years. The reward currency stands at 12.5 blocks and we can expect this to half again in 2020.
Add to this the current political issues surrounding cryptocurrency in China, a country that has considered banning crypto mining within the country, and you can see why Huatie HengAn struggled to make it in the industry.