- Cryptocurrency miner maker Ebang has been warned of a possible delisting from the Nasdaq after its shares traded below $1 for an extended period.
- Rival crypto mining equipment maker Canaan has bought back its warrants issued last year after its shares fell well below the strike price.
Ebang International Holdings Inc. (NASDAQ: EBON), a maker of cryptocurrency miners, said Friday that Nasdaq warned against liquidating its shares after trading below $1 for 30 consecutive business days.
A day earlier, rival crypto mining machine maker Canaan Inc. (NASDAQ:CAN) and crypto mining pool operator BIT Mining Ltd. (NYSE:BTCM) announced separate moves that reflect their own recent challenges. Canaan said it plans to repurchase the warrants it issued last year for about $6.6 million, while BIT Mining has raised $16 million from its new warrant issuance.
Bitcoin has lost over 50% of its value
While the three events may appear independent, the subtext behind all three events is the decline in crypto prices, which is eroding the market value of companies and threatening to hurt their businesses, fueled greatly by the rising demand for cryptocurrencies. depends more The leading currency, bitcoin, has lost more than 50% of its value this year and is worth less than a third of its highs in November last year.
Crypto company stocks tend to move in lockstep with bitcoin prices as the fortunes of these companies are closely tied to the demand for bitcoin and other digital assets.
For miner makers, for example, a surge in crypto prices typically fuels demand for miners looking to mint more virtual coins to capitalize on rising currency prices. Real miners also benefit from rising prices, as their income is directly linked to the value of their digital assets.
Electricity prices are through the roof
While crypto prices have fallen, the opposite is true for electricity prices, which have gone through the roof. This is worrying for crypto companies as miners consume a huge amount of electricity to function.
Additionally, speculative investors who don’t want to buy cryptocurrencies can use Bitcoin stocks as an alternative to related investments, further cementing the relationship between the two investment groups. So it should come as no surprise that Ebang, Canaan, and BIT Mining stocks have all been deep red this year, although the range varies.
At Tuesday’s close, Ebang shares are up a little over $0.47, down about 55% this year and only a fraction of its 2020 IPO price of $5.23 If it rises above $1 for at least 10 consecutive days for six months, a delisting can be avoided; Otherwise, the company has another 180-day grace period to meet the $1 requirement.
But Ebang stock has little upside given the recent underperformance of Bitcoin and other digital currencies. The company only reports its results semi-annually, and it’s quite late with those reports. That means if first-half results turn out to be bad in late September or October, the stock could take another hit, making it difficult to revisit the crucial $1 range.
desperate move
As a hedge against cryptocurrency market volatility, Ebang is diversifying into real-money trading by seeking a license to set up forex or remittance operations in Hong Kong. But that plan hasn’t stopped Ebang’s slide, perhaps because it looks more like a desperate move than a sign of hope to investors.
Canaan’s stock is the best-performing stock, down almost 35% so far. A quick look reveals that the company had a good first quarter, with both revenue and net income more than tripling year over year. However, the results fell short of their own forecasts, due in part to disruptions caused by China’s tough anti-Covid measures. The second quarter results may not be as spectacular as the cryptocurrency’s decline over the past three months.
That means Canaan’s stock is likely to be under pressure for some time to come
The decision to buy back its warrants also shows that the company doesn’t expect its shares to recover in the short term, at least not at levels that would be attractive to contract holders.
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 may realize a number of additional gains if the warrant holders later elect to exercise their right to purchase shares in the Company at a predetermined price. But warrants are treated as liabilities on the company’s balance sheet. So if warrant holders never exercise their right to purchase the underlying stock because the actual stock price never rises above the exercise price, the company is left with nothing but liabilities on its balance sheet.
Back then, the price of exercise didn’t seem so high.
Canaan issued the warrant a year earlier, granting the holders the right to purchase its shares at a price of $16.38 each. Now that the company’s shares are down almost 90% of their value since peaking in March of last year and trading at less than $4, the strike price for Canaan shares is out of reach. Accordingly, the company may have decided it would be better to take the warrant off the books now, freeing it to seek other avenues to raise funds, such as B. a lower exercise price or equity or debt. Another offering of warrants with a simple sale.
bit mining
Finally, the loss-making company is BIT Mining, which has the thinnest cash cushion of the three companies. BIT Mining had just $20 million in cash at the end of March, while Ebang had $240 million at the end of December, mostly from new share issuance, up year-on-year, and Canaan had $417 million.
As such, the $16 million raised by BIT Mining from the issuance of new warrants is significant and gives the Company the opportunity to raise additional funds if warrant holders purchase shares of the Company. The stock is down almost 90% this year alone to less than $0.65 as of Tuesday. However, warrant strike prices aren’t far behind, standing at $1.10 for holders of Series A shares and $1 for Series B shares.
Ebang shares are currently trading at a price-to-sales (P/U) ratio of 1.6 based on the company’s 2021 earnings, while Canaan’s ratio is around 0.8 and BIT Mining’s at just 0.04. Numbers vary, but they all undoubtedly look grim, reflecting the gloomy mood in the crypto markets at the moment.
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