Among the most buzz-worthy names in the cryptocurrency mining space in 2021 is China-based Ebang International (NASDAQ:EBON). So far this year, it hasn’t been unusual to see tens of millions of EBON stock shares trade hands every Monday through Friday.
The company’s primary business segments involve designing application-specific integrated circuit (ASICs) and manufacturing high-performance Bitcoin (CCC:BTC-USD) mining machines.
However, the company recently added another business segment. You might assume that this would be good news, but the market’s reaction wasn’t particularly positive.
In addition to that, there’s a scathing report from a well-known short seller to consider. So, is it possible to construct a bull thesis for Ebang International despite these concerns?
A Closer Look at EBON Stock
During the past three years, EBON stock has risen to about $10 and then fallen back to about $5 three times. Thus, we could say that there’s a defined price range for this stock.
Market traders could view this situation in a couple of different ways. If the up-and-down moves in Ebang shares are making you seasick, then perhaps you’d be better off investing is less volatile assets.
On the other hand, if you can handle volatility, then perhaps you can “play the range” in EBON stock. As of midday April 14, 2021, the stock was trading at $4.79, which is close to the bottom of the range.
And if you own shares and the price shoots back up to $10, that might be a good time to take profits and wait for another pullback.
The Big (but Disappointing) Launch
On March 12 of this year, InvestorPlace contributor William White reported on Ebang’s soon-to-come beta testing of its new cryptocurrency exchange.
At that time, Ebang International Chairman and CEO Dong Hu suggesting that his company might also venture into “other business opportunities in establishing mining farms and cryptocurrency mining.”
EBON stock popped up to the $10 resistance level upon the release of that news. Yet, the share price didn’t stay there for much longer than a week.
Fast-forward to April 5, when White reported on the full launch of Ebang’s cryptocurrency exchange, which is called Ebonex.
As White pointed out, it appears that the exchange isn’t available to everyone who wants to take part in trading crypto.
I tested this out from a U.S.-based location by visiting the website, and it returned a message saying, “We are sorry that EBONEX no longer provides crypto trading in your country/region due to local regulatory requirements for the crypto industry. Thank you for your support and understanding.”
I can imagine that some other folks visited the site and received the same message, and were disappointed. It might not be a mere coincidence, then, that the EBON stock price dropped over the next few days after the full Ebonex launch.
More Bad News
As if that weren’t problematic enough, here’s another potentially discouraging piece of news for Ebang shareholders.
On April 6, InvestorPlace contributor Vivian Medithi reported that famous analytic firm and short seller Hindenburg Research issued a strongly negative report about Ebang International.
Hindenburg’s accusations were quite harsh. For one thing, the short seller claimed that Ebang is reporting “what appears to be fictitious volumes” for Ebonex.
Moreover, Hindenburg disputes Ebang’s claim to be a “leading bitcoin mining machine producer.” According to Hindenburg, Ebang “has since [May 2019] seen its sales dwindle to near-zero.”
Hindenburg’s report came out soon after Ebang’s disappointing crypto exchange launch. Together, these two events seem to have caused the EBON stock price to decline sharply.
So, is it time to grab some Ebang shares while they’re cheap? It depends on what type of investor you are.
Contrarians who like to buy on peak pessimism might view the share-price dip as an opportunity. Momentum-focused traders may choose to avoid the stock, however.
The Bottom Line
It’s not easy, on an emotional level, to buy a stock when there’s potentially bad news.
Yet, that’s what contrarian investors do. Currently, the sentiment surrounding EBON stock is strongly negative.
Therefore, depending on your investing style, you might choose to pick up a few Ebang shares. Just be sure to take profits if they get back to the $10 resistance level.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.