While the world witnessed a cryptocurrency boom earlier this year—with the most popular digital currency bitcoin hitting its $64,863.10 all-time high on April 14—China’s intensifying crackdown led to a major decline in the cryptocurrency market. While bitcoin has so far lost more than half its value since its April high, other cryptocurrencies retreated significantly also.
Crypto investors' sentiment has been further dampened by the Fed’s hawkish pivot. The Fed said last week that it expects inflation to rise 3.4% this year and sees two interest rate hikes in 2023, which is earlier than was expected. Since this reflects the central bank’s rising concerns over inflation, risky assets like cryptocurrencies will likely continue to face significant pressure.
Given this backdrop, we think it is wise to avoid cryptocurrency related stocks such as Coinbase Global, Inc. (COIN), Riot Blockchain, Inc. (RIOT), Marathon Digital Holdings, Inc. (MARA), and Bit Digital, Inc. (BTBT). They look significantly overvalued now and are expected to continue declining in the near term.
Coinbase Global, Inc. (COIN)
Financial technology company COIN is focused primarily on building a crypto economy—a transparent financial system enabled by crypto that leverages crypto assets. Operating across more than 100 countries, COIN provides one-stop shopping for hedge funds, money managers and corporations seeking to access crypto markets through advanced trading and custody technology.
COIN’s total revenue for the first quarter, ended March 31, 2021, came in at $1.80 billion, which represents an 844.8% increase from the prior-year quarter. The company’s net income was $771.46 million, up 2,312.9% year-over-year. However, according to its management, in a letter addressed to the shareholders, “Despite our strong Q1 results, the rapid expansion of the crypto economy also creates challenges for Coinbase. Competition is increasing as new market entrants join the crypto economy every month.”
COIN’s revenue and EPS are expected to decrease 9.3% and 40.1%, respectively, year-over-year to $5.68 billion and $4.90, in its fiscal year 2022. Furthermore, in terms of non-GAAP forward P/E its 24.53x is 110.7% higher than the 11.63x industry average. Its 7.12x forward EV/S is 131.2% higher than the 3.08x industry average.
The Schall Law firm announced on June 18, 2021, that it is investigating claims on behalf of COIN’s investors regarding alleged violations of the securities laws. It is examining whether the company issued false and/or misleading statements and/or failed to disclose information pertinent to investors. The stock has lost 0.8% over the past month to close yesterday’s trading session at $226.60.
COIN’s poor prospects are apparent in its POWR Ratings also. The stock has a D grade for Stability and Value. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Click here to see the additional POWR ratings for COIN (Momentum, Growth, Quality, and Sentiment). COIN is ranked #56 of 128 stocks in the D-rated Software-Application industry.
Click here to check out our Software Industry Report for 2021
Riot Blockchain, Inc. (RIOT)
RIOT is a bitcoin mining company that is focused on gaining exposure to the blockchain ecosystem through its cryptocurrency mining operations, internally developed businesses, joint ventures, and targeted investments in the sector. It has deployed roughly 8,000 application-specific integrated circuit (ASIC) miners at its cryptocurrency mining facility in Oklahoma.
The company’s total revenue increased 872.2% year-over-year to $23.20 million for the first quarter, ended March 31, 2021. RIOT’s net income was $7.53 million, compared to a $4.28 million loss in the prior-year period. However, its total costs and expenses increased 133.2% year-over-year to $15.84 million. Its total liabilities also increased 162.9% from the fourth quarter (ended December 31, 2020) to $8.09 million.
Moreover, RIOT appears to be extremely overvalued now. In terms of forward non-GAAP P/E, its 45.53x is 74.5% higher than the 26.09x industry average. Its 15.55x forward EV/S is 272.9% higher than the 4.17x industry average.
RIOT completed the acquisition of Whinstone US from Northern Data last month. However, the acquisition is expected to take a toll on its finances. The stock has lost nearly 48% over the past three months to close yesterday’s trading session at $31.57.
RIOT’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. It has an F grade for Stability, Value, and Quality, and a D grade for Sentiment. Click here to see RIOT’s ratings for Momentum and Growth as well.
RIOT is ranked #68 of 72 stocks in the D-rated Technology-Services industry.
Marathon Digital Holdings, Inc. (MARA)
Formerly known as Marathon Patent Group, Inc., MARA is a digital asset technology company. It mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets. It owns roughly 2,060 ASICs Bitcoin Miners at a co-hosted facility in North Dakota.
MARA’s total revenues for the first quarter ended March 31, 2021, came in at $9.15 million, up 1,444.8% year-over-year. Its net income for the quarter came in at $83.36 million, compared to a $1.06 million loss in the prior-year quarter. However, its operating loss increased 4,209.9% year-over-year to $47.06 million. MARA’s total operating expenses came in at $56.21 million, representing a 3,237.2% year-over-year rise.
The stock looks significantly overvalued now. In terms of forward EV/S, MARA’s 11.81x is 183.2% higher than the 4.17x industry average. Its 13.72x forward P/S is also higher than the 4.06x industry average.
MARA agreed with Compute North in May 2021 to host roughly 73,000 of its previously purchased Bitcoin miners as part of a new 300-megawatt data center located in Texas. However, the initial term of the contract is three years, and it is uncertain if this will impact MARA’s financials in the near term. The stock has lost 35.4% over the past three months to close yesterday’s trading session at $27.83.
MARA has an overall F rating, which translates to Strong Sell in our proprietary rating system. It has an F grade for Sentiment, Quality, and Stability, and a D grade for Value.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve also rated it for Growth and Momentum. Click here to see all MARA’s ratings. MARA is ranked #99 of 101 stocks in the Financial Services (Enterprises) industry.
Bit Digital, Inc. (BTBT)
Bitcoin mining company BTBT has bitcoin mining facilities in Wuhai, Zhundong, Xilinhot and Sichuan China. It is also engaged in the car rental business and intends to rent its cars to individual and corporate customers.
BTBT’s revenue from cryptocurrency mining was $43.95 million for its fiscal first quarter, ended March 31, 2021, compared to $18,231 in the prior-year quarter. Its net income was $35.79 million, compared to a $3.85 million loss in the year-ago period. However, its total liabilities increased more than 65% sequentially to $3.13 million. Its net cash used in operating activities came in at negative $2.54 million compared to negative $122,258 in the prior-year quarter.
In terms of trailing-12-month EV/S, BTBT’s 5.07x is 11.7% higher than the 4.54x industry average.
Several law firms commenced a class action lawsuit against BTBT in March 2021. It is alleged that the company overstated the extent of its bitcoin mining operation and made other materially false and/or misleading statements. The stock has lost nearly 59% over the past three months and 18.9% over the past month to close yesterday’s trading session at $6.95.
BTBT’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
It has an F grade for Stability and Quality, and a D grade for Value. Click here to see BTBT’s ratings for Growth, Momentum, and Sentiment also. BTBT is ranked #93 in the Financial Services (Enterprises) industry.
COIN shares were trading at $220.53 per share on Tuesday afternoon, down $2.07 (-0.93%). Year-to-date, COIN has declined -32.82%, versus a 13.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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