As investor interest in cryptocurrency wanes, China’s central bank recently declared all cryptocurrency-related activities illegal. After the crackdown intensified, the most popular cryptocurrency, bitcoin, fell 5% on Friday, and the second virtual currency, Ether, fell 7%.
Earlier this year, China announced a crackdown on crypto mining. The major actions against cryptocurrencies taken by China accounted for around 47% of all crypto minings in April.
As a result of these concerns, stocks of companies with high exposure to digital currencies could experience a short-term pullback. This is why stocks like Riot Blockchain, Inc. (RIOT), Canaan Inc. (CAN) and Ebang International Holdings Inc. (EBON) are best avoided.
Riot Blockchain, Inc. (RIOT)
RIOT, along with its affiliates, is focusing on the Bitcoin ecosystem in North America through proof-of-work mining. The company is primarily focused on mining Bitcoin with a large fleet of publicly traded miners.
In May, RIOT acquired Whinstone US, a bitcoin hosting facility from software company Northern Data. RIOT has also declared an extension of Bitcoin mining infrastructure at the US Whinstone facility, but the first part is not expected to be completed until the first quarter of 2022.
RIOT revenue increased 1,668.7% year-over-year to $ 34.35 million for the fiscal second quarter ended June 30. However, total costs and expenses amounted to $ 39.50 million, up 183.9% from the same period last year. The operating loss amounted to $ 5.15 million for the period.
The stock is down 48.1% in the past six months and 34.2% in the past three months to close yesterday’s trading session at $ 24.87.
RIOT’s POWR ratings are consistent with this grim outlook. The stock has an overall rating of D which equates to a sell rating in our proprietary rating system. POWR ratings assess stocks based on 118 different factors, each with its own weight.
RIOT has a stability and quality rating of F and a value rating of D. In the technology and services sector with 72 stocks, it is ranked No.65. This industry is ranked D.
Click here to see the additional notes for RIOT (Growth, Momentum and Sentiment).
Canaan Inc. (CAN)
CAN designs and sells integrated circuit (IC) systems and products for mining Bitcoin and its related components. The company is headquartered in Hangzhou, People’s Republic of China.
On August 13, the company received a purchase order from global infrastructure provider Mawson Infrastructure Group Inc. for 17,352 bitcoin mining machines. The revenue from this order should spread over 2021 and 2022, which may not imply an immediate gain for CAN.
On August 11, CAN announced that its subsidiary Hangzhou Canaan Creative Information Technology Limited had entered into an investment agreement with video content creation and delivery company Pixelworks (PXLW), a subsidiary of Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. CAN should invest $ 3.1. million euros in cash in exchange for a stake in the latter company. The payoffs from this investment may take some time to materialize.
For the three months ended June 30, CAN’s total net revenue increased 507.3% year-over-year to $ 167.54 million. However, its cost of revenues increased 385.5% from the same period last year to reach $ 101.40 million. Total operating expenses were $ 40.52 million, up 320.8% from the prior year quarter.
CAN stock has lost 68.5% in the past six months to close yesterday’s trading session at $ 5.54. It has also lost 32% in the past three months.
In our POWR rating system, CAN was given an F rating for stability and a D rating for sentiment. It is ranked # 34 out of 46 stocks in the Technology – Hardware industry.
To see additional ratings for Growth, Value, Momentum and Quality for CAN, click here.
Ebang International Holdings Inc. (EBON)
EBON is a blockchain technology company primarily focused on the design of application-specific integrated circuit (ASIC) chips. The company is headquartered in Hangzhou, China.
On August 24, EBON successfully mediated a trade dispute with its customers, Zhejiang Qirui Machinery Equipment Co., Ltd. and Zhejiang Huatie Emergency Equipment Science & Technology Ltd.
The company is under investigation and is facing a class action lawsuit filed by the law firm Levi & Korsinsky, LLP on behalf of the shareholders for misrepresenting and maintaining the confidentiality of the facts. There are several other lawsuits brought by law firms such as Schall Law Firm, Frank R. Cruz Law Firms, and Klein Law Firm.
For the year ended December 31, 2020, total EBON revenue decreased 82.6% year-on-year to $ 19.00 million. Total operating expenses increased 18.2% from the prior year to $ 23.75 million. The net loss attributable to EBON and the net loss per common share amounted to $ 30.67 million and $ 0.25, respectively.
The stock was down 41.5% in the past three months and 26.5% in the past month to close yesterday’s trading session at $ 1.86.
EBON’s poor outlook is reflected in its POWR ratings. The stock has an overall rating of D which translates to a sell rating in our POWR rating system. The stock also has a D for stability and quality. Out of 43 stocks in the Technology – Electronics industry, it is ranked No. 34.
In addition to the ratings we have shown above, the EBON ratings for Growth, Value, Momentum and Sentiment can be seen here.
RIOT shares rose $ 0.11 (+ 0.43%) after-market on Thursday. Year-to-date, RIOT has gained 51.27%, compared to a 15.90% increase in the benchmark S&P 500 over the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. Following…