(Yicai Global) May 15 -- China’s Canaan Creative, the world’s second-largest maker of cryptocurrency mining hardware, is being shorted for poor prospects in the sector and its “second-rate” machines, according to a report by US due diligence firm White Diamond Research.

“Bitcoin mining has been a money losing endeavor for several years,” according to the report Sell Canaan: Bitcoin Mining Is an Unprofitable Business That Just Got Worse, which was published yesterday. To make matters worse, the reward for mining Bitcoins was halved on May 11, the report added.

“Canaan's machines are currently unprofitable to miners based on the current Bitcoin price and electricity rates to run the machines,” the report said. They cannot compete with other mining rigs from makers such as Beijing-based Bitmain Technologies, it added.

Hangzhou-based Canaan’s market cap of over USD900 million is “nonsensical,” White Diamond said. The company is on track to be completely out of cash within one to two years. The research firm forecast an 80 percent to 90 percent drop in share price to less than USD1, it added.

Canaan listed on the Nasdaq last November, raising USD90 million and becoming the first crypto mining machine maker to go public. Yesterday, its shares [NASDAQ:CAN] fell 0.3 percent to USD5.97, lower than the issue price of USD9.

Canaan's only other source of revenue is its artificial intelligence chip, but the firm has been unable to pry away market share from leaders such as California-based Nvidia and Advanced Micro Devices, the report added. Last year, it only made USD390,000, amounting to 0.2 percent of its total earnings.

Revenue fell 46 percent to USD204 million in 2019 due to bitcoin market fluctuations and Canaan's net loss was as high as USD149 million, according to an earnings report released last month.

Editor: Kim Taylor