The untethered cryptocurrency market is slowing down following a spectacular rally over the past year. Bitcoin (BTC) has retreated more than 40% since hitting its $64,863.10 all-time high on April 14 due to multiple factors. A recent Chinese crackdown on cryptocurrency trading in the country following the launch of digital Yuan, and China’s goal of reducing its carbon footprint have been key factors driving down bitcoin prices in the past couple of weeks. This is because most of the bitcoin mining operations are concentrated in China.
The U.S. earlier this month also announced actions regarding the trading of bitcoins. The U.S. Treasury Department has released a new rule stating that any cryptocurrency transaction of more than $10,00 must be reported to the IRS. Rising environmental concerns surrounding cryptocurrency mining has also contributed to the decline by bitcoin and other cryptocurrencies. Also, on May 12, Tesla, Inc. (TSLA) founder and CEO Elon Musk suspended the purchase of vehicles using bitcoins due to environmental concerns regarding bitcoin mining, following which bitcoin saw more than $365 billion in market capitalization wiped away. U.S. Treasury Secretary Janet Yellen has also raised concerns regarding the potential environmental impact of cryptocurrency mining.
Because ESG investing is gaining prominence worldwide and regulations surrounding cryptocurrencies are increasing, we think the crypto market correction is likely to continue for some time. In light of this, we think overvalued cryptocurrency stocks Silvergate Capital Corporation (SI), Riot Blockchain, Inc. (RIOT), and Bit Digital, Inc. (BTBT) are best avoided now.
Silvergate Capital Corporation (SI)
SI is a bank holding company for Silvergate Bank, which provides deposit products, such as demand, money market and savings accounts. It also provides additional services that include commercial banking, business and real estate lending, and cash management for digital currency related businesses.
SI has been raising capital to fund its blockchain operations. The company raised $287.50 million through a follow-on public offering of 595,238 shares of stock in January. The proceeds are expected to supplement SI’s and its wholly owned subsidiaries’ regulatory capital levels and to fund the company’s general corporate expenses. Also, in March, SI raised approximately $300 million through an at-the-market equity offering as part of its ongoing capital management strategy.
In late March, SI teamed with Fidelity Digital Assets to expand its bitcoin collateralized U.S.-dollar loans in the market. This move should allow SI to increase its loan disbursement volume and interest income as people leverage their bitcoin holdings for cash.
SI has gained 701.2% over the past year, and 58.8% year-to-date. The stock closed yesterday’s trading session at $118.02. However, the cryptocurrency industry’s bleak outlook makes SI significantly overvalued. In terms of non-GAAP forward P/E, SI is currently trading at 49.35x, 310.1% higher than the 12.03x industry average. And its 19.35 forward Price/Sales multiple is 443.2% higher than the 3.56 industry average. Also, SI is trading at 1.14 times its trailing-12-month PEG, which is significantly higher than the industry average.
SI’s net income has increased 188.6% year-over-year to $12.70 million in the first quarter, ended March 31. Its digital currency customer related fee income stood at $7.10 million, representing a 317.6% rise from its year-ago value. Its EPS came in at $0.55, up 139.1% from the same period last year. This can be attributed to a 431% rise in Silvergate Exchange Network (SEN) transaction volume and 858% rise in U.S.-dollar transfer volume.
The Street expects SI’s EPS to come in at $0.54 for the current quarter (ending June 2021), up 86.2% year-over-year. SI’s revenues are expected to improve 67.5% from their year-ago value to $35.99 million in its fiscal second quarter of 2021.
SI has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
SI has an F grade for Value, and D for Stability, Sentiment and Quality. Of 49 stocks in the D-rated Pacific Regional Banks group, SI is ranked #49.
Beyond what we’ve stated above, one can view additional SI Ratings for Momentum and Growth here.
Riot Blockchain, Inc. (RIOT)
RIOT is a well-known cryptocurrency mining company with a focus on Bitcoin mining operations. As of April 30, the company held more than 1,771 self-mined Bitcoins. RIOT has been working towards implementing environment friendly miners, given the world’s growing embrace of carbon neutrality. The company projects it will utilize 22,946 Antminers using 73 megawatts of energy at a hashrate capacity of 2.3 exahash per second by the second half of 2021.
On May 27, RIOT acquired Whinstone US, Inc. which owns and operates the largest bitcoin hosting facility globally. The acquisition is valued at approximately $651 million, comprising $80 million in cash and 11.80 million RIOT shares. The acquisition marks a pivotal juncture for RIOT because it can now scale its operations significantly to increase its Bitcoin mining volume. However, as BTC prices plummet, it might take some time for this acquisition to become profitable.
RIOT mined 206 bitcoins in April, up 91% year-over-year. The company’s mining revenues increased 881.1% year-over-year to $23.20 million in its fiscal first quarter ended March 31, 2021. The company reported record net income of $7.50 million over this period, significantly higher than the $4.30 million net loss it incurred in the prior quarter.
A $0.12 consensus EPS estimate for the current quarter, ending June 2021, indicates a 138.7% improvement year-over-year. Analysts expect RIOT’s revenues to increase 1,744.7% from the prior year quarter to $35.05 million in the current quarter.
RIOT has gained 1,244.3% over the past year and 67.8% year-to-date. However, its shares have declined 29.7% over the past month to close yesterday’s trading session at $28.50. Nevertheless, the stock is still significantly overvalued when compared to its peers. Its 40.71 non-GAAP forward Price/Earnings multiple is 58.2% higher than the 25.73 industry average. In terms of forward EV/EBITDA, RIOT is currently trading at 24.18x, which is 46.5% higher than the 16.51 industry average. It is trading at 16.63 times its forward sales estimates, which is also significantly higher than the industry average.
RIOT has an overall D rating, which translates to Sell in our proprietary rating system. The stock has an F grade for Value, Quality, Sentiment and Stability. It is ranked #66 of 71 stocks in the D-rated Technology – Services industry.
Click here to view additional RIOT Ratings for Momentum and Growth.
Bit Digital, Inc. (BTBT)
BTBT is a U.S.-based bitcoin mining company that began its mining business in February last year. However, the company’s mining facilities are in the Chinese cities of Wuhai, Zhundong, Xilinhot and Sichuan. BTBT started mining Bitcoin on the Foundry USA Pool earlier this month. As of March 31, the company owned 40,965 mining machines with 2,264.5 PH/s of combined computing power. Shares of BTBT have gained 852.8% over the past year.
BTBT partnered with Compute North on April 21 to expand its mining operations in the United States. Through this partnership, BTBT will be able to deploy 13,000 additional ASIC miners under an additional 40MW hosting agreement at Compute North Facilities in the country.
For its fiscal first quarter, ended March 31, BTBT’s revenues were $43.95 million, indicating a substantial improvement from the year-ago value. The company mined 1,013.40 bitcoins over this period. Its income from operations improved significantly from a negative year-ago value to $25.61 million. Its net income and EPS came in at $35.79 million and $0.74, respectively, indicating impressive growth from the losses incurred in the prior year quarter.
Given the current speculation regarding the future of cryptocurrency, BTBT has been losing momentum. The stock has declined 57% year-to-date, and 28.1% over the past month. But despite the recent decline in share price, BTBT is still overvalued. Its trailing-12-month EV/Sales and Price/Sales margins of 6.74 and 5.63, respectively, are significantly higher than the 4.51 and 4.59 industry averages. And in terms of trailing-12-month Price/Book, BTBT is currently trading at 6.08x, 11% higher than the 5.48x industry average.
BTBT has an overall D rating, which equates to Sell in our POWR Ratings system. It has an F grade for Stability, and D for Value and Quality. Of the 104 stocks in the D-rated Financial Services (Enterprise) industry, BTBT is ranked #96.
We have also rated BTBT for Growth, Momentum and Sentiment. Click here to view all BTBT Ratings.
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SI shares were trading at $114.06 per share on Friday afternoon, down $3.96 (-3.36%). Year-to-date, SI has gained 53.49%, versus a 12.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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