According to an analysis by MinerMetrics, Marathon Digital and Riot Platforms are rated as some of the most overvalued entities in crypto mining.
MinerMetrics founder and analyst Jaran Mellerud based his assertion on the enterprise value-to-sales (EV/S) ratio, a benchmark that compares a company’s total value to its sales revenue. The higher the ratio, the more overvalued a company is.
Marathon’s and Riot’s hype over BTC mining stock
Bitcoin (BTC) mining analyst Jaran Mellerud has stated that Marathon Digital and Riot Platforms rank as some of the most overvalued companies in the cryptocurrency mining sector compared to their competitors.
Cipher Mining tops the list with an EV/S ratio of 7.8, closely followed by Marathon and Iris Energy at 5.6 and Riot Platforms at 5.5, per Mellerud’s report dated Nov. 3.
The analysis suggests that the elevated ratios for Marathon and Riot may be due to their visibility and favor among institutional investors, such as BlackRock and Vanguard. It has provided them with better access to capital and, consequently, higher market valuations than others in the sector.
Mellerud anticipates a shift in investor focus towards other mining entities in the near future, potentially leading to a more balanced valuation landscape across the sector.
He points out that there are mining companies with lower EV/S ratios that present more attractive investment opportunities.
“There exist immense valuation discrepancies in the Bitcoin mining sector that value investors can take advantage of.”
Jaran Mellerud, founder of MinerMetrics.
Riot Platforms, in particular, has a notably high EV-to-hash rate ratio of 156, which Mellerud believes signals overvaluation.
Despite this, he acknowledges Riot’s ambitious expansion plans, including constructing a new gigawatt facility and the expected arrival of 33,000 MicroBT mining machines by early 2024.
Mellerud also notes that Riot’s diverse business operations extend beyond its self-mining hash rate, suggesting that its valuation should not be solely based on this metric.
The year 2023 has seen a robust recovery in the Bitcoin mining sector, with Marathon and Riot’s stock prices surging by 170% and 228%, respectively, as reported by Google Finance.
However, not all analysts share the optimistic outlook for Bitcoin mining stocks. Caleb Franzen from Cubic Analytics pointed out that despite Bitcoin reaching its peak price for the year, mining stocks remain significantly below their year-to-date highs, over 75% in some cases.
Why is this happening?Because no one believes that Bitcoin’s price will rise sufficiently after the halving. Bitcoin mining stocks are valued based on the expected future cash flows from the BTC that they generate. If block rewards are cut in half, the price of BTC would need…— Caleb Franzen (@CalebFranzen)
Franzen also raises the question of productivity in the face of the upcoming Bitcoin halving event, which will reduce block rewards by half. He posits that for mining businesses to maintain their current level of sustainability post-halving, the price of Bitcoin would need to double.
Among the mining companies, Marathon boasts the largest Bitcoin holdings, with 13,726 BTC valued at approximately $486.1 million. Hut 8 Mining Corp, Riot Platforms, and CleanSpark follow with their respective Bitcoin reserves.
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