Some crypto mining equities could be undervalued picks for investors, though others may be value traps in which stocks seem cheap after an extended slump, but end up falling more in price, according to a recent report by Valkyrie.
“Value stocks are the ones that will likely survive and rebound in price while value traps are the ones that will cease mining and likely never eclipse their prior high prices,” the digital asset-focused asset manager wrote.
Against a backdrop of major cryptocurrencies like bitcoin (BTC-USD) and ethereum (ETH-USD) falling as much as 70% from their November 2021 peaks in a widespread bear market, crypto mining stocks like Marathon Digital (NASDAQ:MARA), Riot Blockchain (NASDAQ:RIOT) and Hut 8 Mining (NASDAQ:HUT), in turn, have plunged even more, and in some cases they have sold some of their crypto holdings and mining machines to free up capital.
Valkyrie highlighted that the miners with the lowest debt loads, the highest assets and liquidity and the highest past profitability are more likely to survive the lingering market downturn.
On the flip side, those with negative cash flow, may need to raise new capital or cut spending to improve profitability.
Miners that have smaller crypto holdings relative to their market cap are: HIVE Blockchain Technologies (NASDAQ:HIVE), Bit Digital (NASDAQ:BTBT), CleanSpark (NASDAQ:CLSK), Stronghold Digital (NASDAQ:SDIG) and Greenidge Generation (NASDAQ:GREE). That group of miners could be seen as “defensive” names, as they’re less exposed to having their liquid assets fall in value if crypto prices keep tumbling, Valkyrie noted.
The following set of miners — with larger crypto holdings relative to their market value — is said to be more levered to a potential rebound in crypto: DigiHost Technology (NASDAQ:DGHI), Hut 8 (HUT), Marathon Digital (MARA) and Core Scientific (NASDAQ:CORZ).
Earlier this week, (Sep. 6) short-bitcoin investment products see record inflows as crypto slumps.