According to MinerMetrics founder and analyst Jaran Mellerud, Bitcoin mining heavyweights Marathon Digital and Riot Platforms are among the most overvalued crypto mining companies compared to their competitors. Mellerud’s claim is backed by the enterprise value-to-sales ratio, which measures a company’s value to its sales revenue. The higher the ratio, the more overvalued a company is.
Mellerud’s Nov. 3 report revealed that the miners with the highest EV/S ratios are Cipher at 7.8, Marathon and Iris Energy each at 5.6, and Riot at 5.5. He attributed the high EV/S ratios of these companies to receiving more institutional attention from organizations like BlackRock. Mellerud explained that being favored among institutional investors like BlackRock and Vanguard gives these companies superior access to capital and higher valuations in comparison to the rest of the industry.
Looking ahead, Mellerud expects investors to start allocating to other players, which could potentially even out the valuation discrepancies between these stocks. He suggested that there are better-priced opportunities with lower EV/S ratios that investors can capitalize on.
Another indicator of overvaluation is Riot’s high EV-to-Hashrate ratio at 156, according to Mellerud. He noted that Riot has “massive growth” priced in as it’s constructing a gigawatt site and awaits the delivery of 33,000 MicroBT machines in early 2024. Additionally, Riot has several business lines that are not reflected in its self-mining hashrate, meaning any valuation conclusions drawn from its high EV-to-Hashrate ratio should be approached with caution.
Amid a strong rebound in the Bitcoin mining sector in 2023, led by Marathon (MARA) and Riot (RIOT), Mellerud pointed out that the mining stocks have outperformed Bitcoin over the same period. Marathon’s share price has increased by 170% and Riot’s share price has increased by 228%, according to Google Finance.
However, not every mining analyst believes that Bitcoin mining stocks will continue to rise. Caleb Franzen, founder of Cubic Analytics, noted that Bitcoin has already reached its year-to-date peak price, while the top mining stocks are still over 75% off year-to-date price highs. Franzen also suggested that Bitcoin mining firms may soon need to become twice as productive in light of the upcoming Bitcoin halving event.
From a holdings perspective, Marathon holds the largest number of Bitcoins among mining companies, with 13,726 BTC worth $486.1 million. This is followed by Hut 8, Riot, and CleanSpark, with respective holdings of 9,366 BTC, 7,309 BTC, and 2,240 BTC.
In conclusion, Bitcoin mining companies like Marathon Digital and Riot Platforms exhibit overvaluation compared to their competitors. As the industry continues to evolve, investors and analysts are keeping a close watch on these companies and the opportunities for potential investment in the sector. They are also considering the impact of upcoming events such as the Bitcoin halving on the future performance of these companies.
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