- Ebang, a maker of cryptocurrency miners, has been warned of a possible delisting from Nasdaq after the stock traded below $ 1 for an extended period
- The rival manufacturer of crypto-equipment Canaan has repurchased its warrants issued last year after its shares fell to levels well below the strike price
Ebang International Holdings Inc. (NASDAQ: EBON), a maker of cryptocurrency mining machines, said Friday that it was warned by the Nasdaq that its shares could be delisted after trading below $ 1 for 30 consecutive business days.
Just a day earlier, rival cryptocurrency maker Canaan Inc. (NASDAQ: CAN) and crypto pool operator BIT Mining Ltd. (NYSE: BTCM) announced separate features that reflect their own recent challenges. Canaan said it plans to repurchase warrants it issued last year for about $ 6.6 million, while BIT Mining raised $ 16 million from its own new warrant issue.
Bitcoin has lost more than 50% of its value
Although the three events may appear independent, the subtext behind all three events is cracked in cryptocurrencies, which erodes the market value of companies and threatens to harm their companies, which are heavily dependent on the booming demand for cryptocurrencies. The leading currency Bitcoin has lost more than 50% of its value this year and is worth less than a third of its record high value reached in November last year.
Shares of cryptocurrencies tend to move in line with bitcoin prices as the assets of these companies are closely linked to the demand for bitcoin and other digital assets.
For mining manufacturers, for example, an increase in cryptocurrencies usually increases the demand from miners who want to mint more virtual coins to take advantage of rising currency prices. Actual miners also benefit from rising prices, as their earnings are directly linked to the value of their digital assets.
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Electricity prices are through the roof
While cryptocurrencies have plummeted, the opposite is true of electricity prices, which have gone through the roof. This is of concern to the crypto companies because the mining machines use large amounts of electricity to run their operations.
Speculative investors who do not want to buy cryptocurrencies can also use bitcoin stocks as a substitute for related investments, strengthening the connection between the two investment groups. So it is not surprising that the shares of Ebang, Canaan and BIT Mining have been deep in the red this year, although the extent varies.
At the close of Tuesday, Ebang’s shares were just over $ 0.47, down about 55% this year and a fraction of 2020’s listing price of $ 5.23. If the stock rises above $ 1 for at least 10 consecutive days over the next six months, it may avoid delisting; otherwise, the Company has another 180-day grace period to meet the $ 1 requirement.
But the Ebang stock seems to have some potential due to the poor performance of bitcoin and other digital currencies lately. The company only reports its results semi-annually and has been out quite late with these reports. This means that the stock may suffer another setback if its first-half results come out poorly in late September or October, making it even harder to revisit the critical threshold of $ 1.
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The desperate step
Perhaps as a hedge against cryptocurrency volatility, Ebang is diversifying into real money trading by applying for a license to set up currency or money transfers in Hong Kong. But that plan has not stopped Ebang’s stock decline, perhaps because it looks more like a desperate move for investors than a signal of hope.
Canaan’s stock is the best performing stock, down about 35% year to date. A quick look reveals that the company had a good first quarter, with both revenue and net income more than tripling year over year. But the results did not live up to its own forecasts, in part due to disruption caused by China’s tough anti-Covid measures. The results for the second quarter may not be as brilliant either, as cryptocurrencies have fallen over the past three months.
This means that Canaan’s stock is likely to be under pressure for some time to come
The decision to repurchase its warrants also appears to indicate that the company believes that its shares will not recover in the short term, at least not to levels that would be attractive to the holders of the contracts.
Issuing such instruments can be an attractive way for a company to raise funds. In addition to the proceeds from the sale of warrants, the company can obtain many additional gains if the warrant holders later decide to exercise their right to purchase shares in the company at a predetermined price. But warrants are treated as liabilities on a company balance sheet. Thus, if the warrant holders never exercise their right to purchase the underlying share because the actual share price never rises above the exercise price, the company is only left with liabilities on the balance sheet.
At that time, the exercise price did not look so high
Canaan issued warrants just over a year ago, giving holders the right to buy their shares for $ 16.38 each. Now that the company’s stock has lost nearly 90% of its value since its peak in March last year and is trading at less than $ 4, the strike price for Canaan shares seems unattainable. Therefore, the company may have decided that it would be better to take warrants out of the books now to give it the flexibility to seek other ways to raise funds, such as. B. another offering of warrants with a lower exercise price or a simple sale of equity or debt.
Finally, there is the loss-making company BIT Mining, which has the thinnest cash cushion of the three companies. BIT Mining had only $ 20 million in cash at the end of March, while Ebang had $ 240 million at the end of December, mostly from new stock issues over the past year, and Canaan had $ 417 million.
So the $ 16 million that BIT Mining raised from the issuance of new warrants is significant and allows the company to raise additional funds if the warrant holders buy the company’s shares. The stock has fallen nearly 90% this year alone to less than $ 0.65 as of Tuesday. However, the strike prices of the warrants are not too far off, at $ 1.10 for holders of Series A shares and $ 1 for Series B shares.
Ebang shares are currently trading at a price-to-sell (P / U) ratio of 1.6 based on the company’s 2021 earnings, while Canaan’s ratio is around 0.8 and BIT Minings is only 0.04 lies. The numbers vary, but they undoubtedly all look depressed, reflecting the current bad mood in the crypto markets.
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