The market has been very upbeat about cryptocurrencies over the past several months. Both retail and institutional investors have been considering adding cryptocurrencies to their portfolios to hedge against uncertainties in the financial markets and use them as a store of value. Bitcoin, the most popular cryptocurrency, received a solid boost in the beginning of the year from a large strategic investment in it by Tesla (TSLA), which announced its intention to accept bitcoin as a mode of payment from people for its vehicles.

This led to increased confidence in cryptocurrencies by investors. Crypto investors even ignored warnings issued by Treasury Secretary Janet Yellen that bitcoin is an “extremely inefficient” way to conduct monetary transactions and that federal regulations on cryptocurrencies may soon be forthcoming. But then Elon Musk tweeted that TSLA had suspended vehicle purchases using bitcoin amid concerns surrounding the use of fossil fuels in mining.  This precipitated a correction by major cryptocurrencies. Investors have been up in arms and have been selling crypto mining stocks because the decline in crypto prices directly affects the top-line of these companies.

Riot Blockchain Inc. (RIOT) and Ebang International Holdings Inc. (EBON)  slid significantly last week and appear quite vulnerable currently. So, let’s evaluate these names more closely.

Riot Blockchain Inc. (RIOT)

Colorado-based Bitcoin miner RIOT focuses on building, supporting, and operating Blockchain technology  ecosystems as well as manufacturing in-vitro substances. Its portfolio includes Verady, Coinsquare and Tesspay, which are involved in digital currency mining operations that  utilize specialized computers to generate digital currency. RIOT expects to install 6,500 miners in the current  quarter, and upon full deployment RIOT will have 22,946 Antminers in operation, with an estimated hash rate capacity of 2.3 exahash per second.

On April 8, RIOT signed an agreement to acquire Whinstone US, Inc., the owner and operator of North America’s largest Bitcoin hosting facility, with 300 MW in developed capacity, in an approximately $651 million deal. Upon closing, RIOT will be one of the largest publicly traded Bitcoin mining companies operating in North America, as measured by developed capacity.

RIOT stock declined 24.5% last week but is still up an impressive  38% year-to-date. In fact, the stock fell  6.6% intraday yesterday to close the session at $24.31. RIOT has retreated  significantly  from its $79.50, 52-week high, hit back in February, and is currently  trading 69.4% below it.

In the first quarter (ended March 31, 2021), RIOT’s mining revenue surged 881.1% year-over-year to $23.2 million, and its mining revenue margin increased to 67.5%, compared to 40.4% in the comparable period last year. The company produced 491 newly minted BTC during the quarter, increasing its total mined BTC by 62% sequentially. RIOT further reported record EPS of $0.09, significantly improving from the year-ago loss of $0.15 per share. In addition,  RIOT produced 206 BTC in April alone, an approximately  91%  increase  over its April 2020 production.

RIOT is continuing its aggressive operational expansion with the purchase of additional next-generation mining equipment from Bitmain in to keep pace with halving events. The company remains on schedule to more than triple its currently deployed capacity by the end of 2022. Once fully deployed, the company estimates it will have more than 80,000 Bitmain Antminers in operation, with an estimated overall hash rate efficiency of 33 joules per terahash. However, not every analyst is bullish on RIOT, and according to famed short-selling firm, Citron Research, RIOT stock is worth a mere $2.

RIOT’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RIOT has an F grade of F for Stability and Quality, and a D grade  for Value. The stock is currently ranked #62 in the 73-stock, D-rated Technology – Services industry.

In total, we rate RIOT on eight different levels. Beyond what we stated above, we have also given RIOT grades for Growth, Momentum and Sentiment. Get all of RIOT’s ratings here.

Ebang International Holdings Inc. (EBON)

EBON is a blockchain technology company that manufactures and sells Bitcoin mining machines and telecommunication products in the People’s Republic of China, the United States, Hong Kong, and internationally. With strong application-specific integrated circuit (ASIC) chip design capability, EBON is a leading mining machine producer in the global market with steady access to wafer foundry capacity.

On February 17, EBON launched its Bitcoin mining business. According to the company’s resolution, EBON plans to operate its Bitcoin mining business by adopting a combination of deploying self-manufactured mining machines and mining machines purchased from other manufacturers as well as leasing computing power from other mining farms. At the same time, the company expects to invest in data center construction to provide support for Bitcoin mining activities.

For the full-year 2020, EBON sold 0.50 million Thash/s of total computing power, representing a 91.6%  year-over-year. Its total net revenues for the period were $19 million, falling 82.6% year-over-year , as the company witnessed subdued demand for its mining machines, realizing a much lower average selling price. However, its operating losses narrowed to $26.65 million from the year-ago loss of $50.65 million. In addition, the company reported a $0.25 net loss per share, compared to a $0.38 year-ago loss  per share.

The correction in EBON’s share price might seem to be short-lived because the stock registered  a 9.5% intraday gain yesterday to close the trading session at $3.01. However, the stock lost 22.7% last week and is down more than 50% so far this year. Notably, EBON is trading 80% below its $14.95, 52-week high.

EBON’s move into the mining business has been contributing to its top-line and has also optimized its product offering structure. It is helping the company’s transformation from a hardware manufacturer to a blockchain company with comprehensive involvement in its industry chain. However, EBON has been facing a series of  lawsuits after famous short-selling firm Hindenburg Research, published a report in April this year alleging the company used the proceeds from its IPO last year for  a “series of opaque deals with insiders and questionable counterparties.” Adding to this concern, EBON is still unprofitable and is also struggling to tackle its supply chain issues.

It’s no surprise that EBON has an overall rating of D, which translates to Sell in our POWR Ratings system. EBON also has a D grade for Stability, and C for both Value and Quality. It is ranked #37 of 45 stocks in the B-rated Technology – Electronics industry.

In addition to the POWR Ratings grades we’ve just highlighted, one  can see  EBON’s ratings for Growth, Momentum, and Sentiment here.

RIOT shares were trading at $25.56 per share on Tuesday afternoon, up $1.25 (+5.14%). Year-to-date, RIOT has gained 50.44%, versus a 10.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

More Resources for the Stocks in this Article