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Property and Equipment Spending Plunged in Q3

What does that mean for Bitcoin’s hashrate?

When we looked at Canaan’s Q3 earnings, one interesting thing we noticed was the sharp decline in its contract liabilities, which dropped to only $42 million as of Sept. 30. For comparison, it was nearly $280 million on March 31.

As the chart below shows, Canaan’s contract liability as of the end of a quarter has been indicative of its revenue in the next quarter. Its Q4 revenue looks pessimistic, according to that pattern.

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The decline of contract liability from manufacturers reflects how much mining companies are cutting down spending on equipment even if they made prior pre-order commitments.

The fact that Canaan’s revenues in Q2 and Q3 were both smaller than the contract liabilities as of the start of the respective quarters is a sign that either it failed to deliver equipment on time or its customers chose to not go ahead with their pre-orders.

Although Canaan isn’t the largest bitcoin mining equipment maker, it is reasonable to expect a similar trend for two of its biggest competitors, Bitmain and MicroBT.

Nine out of the 15 public mining companies that we regularly follow have published their financial statements for Q3’22.

The total of their net purchases and deposits for Property, Plant, and Equipment (PP&E) during the past quarter dropped to $128 million, down 70% since Q2. Quite a few also reported gains from either the sale of equipment or getting their pre-paid miner deposits returned. 

With less spending from mining companies on PP&E, we could expect bitcoin’s hashrate to slow down its growth—if there’s going to be any growth in the coming months at all. For the time being, it looks like the hashrate peaked at 270 EH/s in mid-November and has been trending down since then already as bitcoin’s hashprice stays at all-time low levels.