Investors are talking about two big crypto mining companies, Marathon Digital and Riot Platforms. They might be a bit too expensive compared to other similar companies.
Jaran Mellerud, an expert, looked at some metrics to figure this out. He used something called the “enterprise value-to-sales ratio.” It tells us how much a company is worth compared to how much money it makes. The company is considered overvalued if the ratio gets high.
According to Mellerud, some mining companies have very high ratios. Cipher leads the way with a ratio of 7.8. Marathon and Iris Energy are next with 5.6, and Riot is close with 5.5.
So, why are the mining stocks overvalued?
Mellerud says it’s because attention from big investors like BlackRock and Vanguard led to a lot of investments into these companies. These investors have given them a lot of money and made their prices go up. But Mellerud thinks this might change soon, and other companies could become more popular.
Mellerud suggests that there are other good opportunities in the Bitcoin mining business that are not as expensive. So, if you’re looking to invest, you might want to consider those.
What about Riot?
Riot Platforms also has another thing that makes it seem expensive, something called the “EV-to-Hashrate ratio,” which is a measure of how valuable the company is compared to how much mining power it has. Riot’s ratio is 156, which is pretty high.
Mellerud says that Riot is expected to grow a lot because it’s building a big mining site and getting lots of machines in 2024. However, he also says Riot does other things that don’t show up in this ratio, so we need to be careful when we decide if it’s really too expensive.
Both Marathon and Riot’s stock prices went up a lot, more than Bitcoin itself in the beginning of 2023. But not everyone is so sure this will continue.
Another expert, Caleb Franzen, thinks Bitcoin has already reached its highest price for the year. He’s worried that the mining companies might have to work twice as hard after the next Bitcoin “halving” to keep making money.
Marathon has the most Bitcoin among all the mining companies, with 13,726 BTC, worth about $486.1 million. Other companies like Hut 8, Riot, and CleanSpark have a lot of Bitcoin too.
Marathon’s mining blunder
In September 2023 Marathon did an experiment and accidentally mined an invalid Bitcoin block. They said it was a mistake from their testing, and it didn’t affect the real Bitcoin network.
It’s a reminder of how tricky mining can be. The mistake proved to be costly and made a notable negative impact on Marathon’s stock price.
So, in simple terms, some experts think Marathon and Riot might be too expensive for investors compared to other mining companies. But not everyone agrees, and there’s still a lot happening in this world of cryptocurrency mining.