Crypto Mining Stocks: Don't Get Caught Trying to Catch a Falling Knife

: RIOT | Riot Blockchain Inc. News, Ratings, and Charts

RIOT – The downtrend in crypto mining stocks is closely related to the broad-based sell-off in cryptocurrencies. Today I’m going to analyze Riot Blockchain (RIOT), Marathon Digital Holdings (MARA), and Hut 8 Mining (HUT), to determine if these stocks are smart investments to buy on the dip.

The stock market has faced relentless selling pressure lately due to concerns over aggressive interest rate hikes by the Federal Reserve to tame surging inflation and the possibility of a recession. Although some cryptocurrencies, especially Bitcoin, have often been tipped to be a good inflation hedge, crypto prices have also plunged.

The correction in the cryptocurrency market has sparked panic among investors. The crypto mining stocks, which are often used as a proxy play for cryptocurrencies by investors, also bore the brunt of the downtrend in risky assets. Chief Investment Officer of Valkyrie Investments Steven McClurg said, “Crypto and equity markets are largely selling off in tandem due to a broad risk-off environment where many investors are moving to cash.”

Stablecoins, which are pegged to the value of a currency or any commodity like gold, also crashed during the recent market correction. The stable coin TerraUSD, or UST, which is supposed to mirror the value of the U.S. dollar, plummeted to 11 cents yesterday. The decline put pressure on popular cryptocurrencies and erased the value of TerraUSD’s sister token, Luna. Also, cryptocurrency exchange Coinbase Global, Inc. (COIN) collapsed after reporting a quarterly loss of $430 million and a 19% drop in monthly users. Along with bitcoin and other cryptocurrencies, the cryptocurrency mining stocks were badly hit during the recent market correction after their rally late last year due to the ban on crypto mining in China.

These negative developments are expected to keep cryptocurrencies and crypto mining stocks under pressure. Although these stocks have corrected from their peaks, it may not be wise to buy the dip in them.

Today I’m going to analyze why cryptocurrency mining stocks Riot Blockchain, Inc. (RIOT), Marathon Digital Holdings, Inc. (MARA), and Hut 8 Mining Corp. (HUT) must be avoided.

Crypto Mining Stocks: A Falling Knife

Crypto mining is the process by which cryptocurrencies are entered into circulation. Mining is performed using sophisticated hardware that solves an extremely complex computational math problem. Higher computing power means better odds of mining cryptocurrency. Crypto mining involves finding new blocks, verifying transactions, and then adding them to the network. The process of crypto mining is highly painstaking and cost-intensive.

The cryptocurrency mining stocks are affected by the decline in cryptocurrencies as many mining companies hold large amounts of popular cryptocurrencies like Bitcoin and Ethereum on their balance sheets.

Investors not interested in having direct exposure to the highly risky cryptocurrencies often invest in crypto mining stocks as a proxy play. After China cracked down on crypto mining late last year, crypto mining companies around the world rallied because of reduced competition. However, crypto mining stocks have corrected from their highs as prices of popular cryptocurrencies fell during the recent market correction. Also, their margins are expected to take a hit due to the higher energy prices that the sanctions on Russian energy imports resulted in.

The costs involved with mining cryptocurrency are rising. And with the constant decline in the prices of popular cryptos, it is becoming extremely difficult for miners to generate profits. This has led to the crypto mining companies selling their holdings in order to remain profitable. This is also one of the key reasons cryptocurrencies are witnessing extreme selling pressure. For now, the bull run in the crypto markets seems to be over with the macroeconomic pressures. Thus, we think it could be wise to avoid investing in fundamentally weak crypto mining stocks now.

Crypto Mining Stocks to Avoid Now

Riot Blockchain, Inc. (RIOT)

RIOT is involved in cryptocurrency mining and the overall blockchain system through various investments. The company has deployed approximately 8,000 application-specific integrated circuit miners at its cryptocurrency mining facility in Oklahoma. In addition, its subsidiary Tess Inc. seeks to develop a blockchain-based escrow service for wholesale telecom carriers.

In terms of trailing-12-month P/E, RIOT’s 37.29x is 51.4% higher than the 24.62x industry average. Likewise, its 3.38x trailing-12-month EV/S is 9.6% higher than the 3.08x industry average. And the stock’s 75.52x forward EV/EBIT is 388.9% higher than the 15.44x industry average.

RIOT’s trailing-12-month EBIT margin and Levered FCF margin are negative compared to the industry averages of 8.65% and 9.14%, respectively. Also, its trailing-12-month ROCE and ROA of 2.30% and 1.30% are lower than the industry averages of 7.89% and 3.49%, respectively.

RIOT’s weak prospects are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an F grade for Stability and Quality and a D grade for Sentiment. It is ranked #71 out of 79 stocks in the Technology – Services industry. Click here to see the other ratings of RIOT for Growth, Value, and Momentum.

Marathon Digital Holdings, Inc. (MARA)

MARA is a digital asset technology company focused primarily on mining cryptocurrencies in the blockchain ecosystem and operates as a digital asset generator in the U.S.

In terms of forward EV/S, MARA’s 4.27x is 53.6% higher than the 2.78x industry average. Likewise, its 2.92x forward P/S is 5% higher than the 2.78x industry average.

In terms of trailing-12-month gross profit margin, MARA’s 6.80% is 86.5% lower than the industry average of 50.38%. Also, its trailing-12-month EBIT margin and EBITDA margin are negative compared to the industry averages of 8.65% and 13.44%, respectively.

MARA’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.

It has an F grade for Stability and Quality and a D grade for Value and Sentiment. Within the D-rated Financial Services (Enterprise) industry, it is ranked #103 out of 107 stocks. To see the other ratings of MARA for Growth and Momentum, click here.

Hut 8 Mining Corp. (HUT)

Headquartered in Toronto, Canada, HUT is a bitcoin mining company with industrial-scale operations. The company utilizes specialized equipment to solve computational problems to validate transactions on the bitcoin blockchain and provides hosting services to institutional clients.

In terms of forward EV/EBIT, HUT’s 127.13x is 723.1% higher than the 15.44x industry average. Likewise, its 2.80x forward EV/S is 0.7% higher than the 2.78x industry average.

In terms of trailing-12-month gross profit margin, HUT’s 47.69% is 5.3% lower than the industry average of 50.38%. Also, its trailing-12-month net income margin and levered FCF margin are negative compared to the industry averages of 5.63% and 9.14%, respectively.

HUT’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.

It has an F grade for Stability and Quality and a D grade for Value. It is ranked #104 in the same industry. Click here to see the other ratings of HUT for Growth, Momentum, and Sentiment.


RIOT shares were trading at $7.51 per share on Tuesday morning, up $0.32 (+4.45%). Year-to-date, RIOT has declined -66.37%, versus a -14.44% rise in the benchmark S&P 500 index during the same period.


About the Author: Dipanjan Banchur


Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...


More Resources for the Stocks in this Article

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