Bitcoin Mining Companies Overvalued, Says Analyst
According to MinerMetrics founder and analyst Jaran Mellerud, Bitcoin (BTC) mining giants Marathon Digital and Riot Platforms are overvalued compared to their competitors. Mellerud points to the enterprise value-to-sales ratio as the key metric backing his claim, indicating that the higher the ratio, the more overvalued a company is.
Specifically, Cipher has an EV/S ratio of 7.8, while Marathon and Iris Energy each have a ratio of 5.6, and Riot has a ratio of 5.5. Mellerud attributes the high ratios of these heavyweights to receiving more institutional attention from companies like BlackRock.
“These companies have historically been favored among institutional investors like Blackrock and Vanguard, giving them superior access to capital and higher valuations like the rest of the industry.”
Mellerud suggests that there are better-priced opportunities with lower EV/S ratios available for investors to capitalize on.
“There exist immense valuation discrepancies in the Bitcoin mining sector that value investors can take advantage of.”
Riot’s Overvaluation Indicators
Mellerud also points out Riot’s high EV-to-Hashrate ratio at 156 as another indicator of its overvaluation. He notes that Riot has “massive growth” priced in as it awaits the delivery of 33,000 MicroBT machines in early 2024.
The rebounding Bitcoin mining sector has seen Marathon (MARA) and Riot (RIOT) leading the way with respective share price increases of 170% and 228%, according to Google Finance. However, not every mining analyst believes that these stocks will continue to rise.
Potential Challenges Ahead
Cubic Analytics founder Caleb Franzen noted that Bitcoin has already reached its year-to-date peak price, while top mining stocks are still over 75% off year-to-date price highs. Franzen also considered whether Bitcoin mining firms will soon need to become twice as productive in light of an upcoming Bitcoin halving event.
“If block rewards are cut in half, the price of BTC would need to double post-halving in order for their business to be just as sustainable as it was pre-halving.”
Hot Take: Evaluating Bitcoin Mining Stocks
The evaluation of Bitcoin mining stocks is a crucial aspect for investors looking to capitalize on potential opportunities in the industry. While some companies may be overvalued based on certain metrics, others may offer better-priced opportunities with lower ratios. As the market continues to evolve, it’s essential for investors to carefully analyze potential challenges and consider various factors when making investment decisions in the Bitcoin mining sector.
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