Amid fading investor interest in cryptocurrency, China’s central bank recently declared all cryptocurrency-related activities illegal. After the intensified crackdown, the most popular cryptocurrency, bitcoin, lost 5% on Friday, and the second-largest virtual currency, Ether, declined 7%.
Earlier this year, China announced a crackdown on crypto mining. The major actions against cryptocurrencies taken by China accounted for about 47% of all crypto mining in April.
Due to these concerns, shares of companies significantly exposed to digital currencies might see a pullback in the near term. That is why Stocks such as Riot Blockchain, Inc. (RIOT), Canaan Inc. (CAN), and Ebang International Holdings Inc. (EBON)are best avoided now.
Riot Blockchain, Inc. (RIOT)
RIOT, with its subsidiaries, is focused on the Bitcoin ecosystem in North America through proof-of-work mining. The company is primarily focused on Bitcoin mining with a large fleet of publicly traded miners.
In May, RIOT acquired Whinstone US, a bitcoin hosting facility from software company Northern Data. RIOT also declared a Bitcoin mining infrastructure expansion at the Whinstone US facility, but the first portion is not expected to be completed before the first quarter of 2022.
RIOT’s revenue increased 1,668.7% year-over-year to $34.35 million for the fiscal second quarter that ended June 30. However, total costs and expenses came in at $39.50 million, up 183.9% from the same period last year. Operating loss came in at $5.15 million for the period.
The stock has declined 48.1% in the last 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 bleak outlook. The stock has an overall grade of D which equates to a Sell rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RIOT has a Stability and Quality grade of F, and a Value grade of D. In the 72-stock Technology – Services industry, it is ranked #65. This industry is rated D.
Click here to see the additional grades for RIOT (Growth, Momentum, and Sentiment).
Canaan Inc. (CAN)
CAN designs and sells Integrated Circuits (ICs) systems and products for Bitcoin mining and its allied components. The company is headquartered in Hangzhou, the 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 revenues from this order are expected to be spread over 2021 and 2022, which might 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 content creation and video delivery company Pixelworks (PXLW) subsidiary Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. CAN is expected to invest $3.1 million in cash in exchange for an equity interest in the latter company. The gains from this investment may take some time before materializing.
For the three months that ended June 30, CAN’s total net revenue increased 507.3% year-over-year to $167.54 million. However, its cost of revenues rose 385.5% from the same period last year to $101.40 million. Total operating expenses were $40.52 million, up 320.8% from the prior-year quarter.
CAN’s stock has declined 68.5% over the past six months to close yesterday’s trading session at $5.54. It also lost 32% over the last three months.
In our POWR Ratings system, CAN has been accorded an F grade for Stability, and a D grade for Sentiment. It is ranked #34 out of 46 stocks in the Technology – Hardware industry.
To see the additional grades for Growth, Value, Momentum, and Quality for CAN, click here.
Ebang International Holdings Inc. (EBON)
EBON is a blockchain technology company primarily focused on an application-specific integrated circuit (ASIC) chip designing. The company is headquartered in Hangzhou, China.
On August 24, EBON reached mediation in a sales dispute with its customers, Zhejiang Qirui Machinery Equipment Co., Ltd. and Zhejiang Huatie Emergency Equipment Science &Technology Ltd.
The company is under investigation, facing a class-action lawsuit filed by law firm Levi & Korsinsky, LLP on behalf of shareholders for misleading statements and keeping facts private. There are several other lawsuits from law firms such as the Schall Law Firm, the Law Offices of Frank R. Cruz, and the Klein Law Firm.
For the fiscal year that ended December 31, 2020, EBON’s total revenue decreased 82.6% year-over-year to $19.00 million. Total operating expenses rose 18.2% from the prior year to $23.75 million. Net loss attributable to EBON and net loss per ordinary share came in at $30.67 million and $0.25, respectively.
The stock has declined 41.5% over the past three months and 26.5% over the past month to close yesterday’s trading session at $1.86.
EBON’s poor prospects are reflected in its POWR Ratings. The stock has an overall grade of D which translates to a Sell rating in our POWR Ratings system. The stock also has a D for Stability and Quality. Out of 43-stocks in the Technology – Electronics industry, it is ranked #34.
In addition to the grades we’ve stated above, one can see EBON’s grades for Growth, Value, Momentum, and Sentiment here.
RIOT shares rose $0.11 (+0.43%) in after-hours trading Thursday. Year-to-date, RIOT has gained 51.27%, versus a 15.90% rise in the benchmark S&P 500 index during 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.
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