Is A Rebound In Store For MGT Capital Investments Inc. (OTCMKTS:MGTI)?

MGT Capital Investments Inc. (OTCMKTS:MGTI) has steadily depreciated over the past few weeks, from record highs of $7 a share to the $2.61 handle. While the current valuation is still high from when we carried out our previous analysis, it again raises concerns about the stock’s long-term prospects.MGTI Sell-Off The depreciation follows a sell-off period that has seen cryptocurrencies shed a substantial amount of market value amidst concerns about a potential bubble burst in the space. Bitcoin has already dropped from record highs of $19,000 to below the $10, 000 mark, consequently triggering a selloff of all stocks with stakes in the space. MGTI Daily ChartMGT Capital Investments is one of the stocks that has felt investor’s wrath as bitcoin price continues to drop. The stock has already broken a critical support level at the $2.80 handle and could fall to the $2.0 handle, given the strength of the sell-off wave. On the upside, the stock faces immediate resistance at the $3.0 handle, above which it could rise to the $4.0 handle.While the recent pullback presents an opportunity to pick up some discounted shares, uncertainty about cryptocurrencies future raises doubts about whether now is the right time to enter a long position.MGT Capital Investments has most of its operations tied to the business of mining cryptocurrencies, and as long as digital currencies prices continue to tank, its revenue generating base should remain under pressure. What MGT Capital Investments Does MGT Capital Investments is one of the largest bitcoin miners in the world with mining facilities in Sweden and Washington State. The company’s mining operations consist of approximately 5,000 Bitmain Technologies S9 Antimer rigs able to generate roughly 70 Ph/s and over $4 million in monthly revenue.John McAfee Exit The stock has come under pressure in recent weeks following the announcement that it has parted ways with controversial anti-virus software developer John McAfee. By severing ties, the company has also announced plans to spin off its Cybersecurity arm that he was meant to run.While the decision was ‘amicable,’ it has not gone well with investors. A point of concern is that the divestiture will reduce MGT Capital investments footprint as it exits the Cybersecurity space.Together with its subsidiaries, the company acquired and developed a portfolio of Cybersecurity solutions that in one way offset losses incurred in the other businesses. The divestiture will position the company as a pure cryptocurrency play and trim its stream of revenues.Taking into consideration the fact that the cryptocurrency space is still in the early phases of development with a lot of uncertainty, it does not come as a surprise that MGTI is under pressure.Bitcoin Mining Uncertainty Amidst the uncertainty and turmoil in the cryptocurrency space, MGT Capital Investments is remaining upbeat about its mining operations. The company has a lot of reasons to be bullish given that it ended 2017 in a strong financial position with $9.5 million in cash, no debt, and minimal payables.The 5,000 Bitmain Antminer S9 Bitcoin mining rigs mean the company is well positioned to take advantage of current bitcoin prices even as they continue to drop.The company has also entered into negotiations as it looks to triple its mining operations over the next few months.

“We are ecstatic to report that we have entered into agreements to secure reliable and adequate electric power in Sweden, and expect to begin deployment of mining rigs there by the end of next month. Moreover, the initial phase of this relationship will give the Company 25 MW of power, enough for over 15,000 Bitmain S-9 mining rigs,” said Stephen Schaeffer, President of MGT's Crypto Capital Strategies division.

The big question now is whether it will be able to recoup its investments and generate a profit as cryptocurrencies prices continue to drop.Financial PositionMGT Capital Investments saw its revenues skyrocket to 33% in the third quarter to $515,000. The increase followed a period in which Bitcoin climbed to record highs. With the momentum having cooled off, it remains to be seen what the company will post in the first quarter of 2018.

“With no further funding requirements, MGT remains confident in its previous projections from October 16, 2017 that with 4,700 rigs in operation by the first quarter 2018, generating over 60 Ph/s of potential hash power, the Company can record over $2.0 million in monthly revenue and $1.1 million of EBITDA,” MGTI in a statement.

Conclusion Concerns about what the future holds for cryptocurrencies amidst widespread crackdowns in major economies continues to fuel fear among investors. The crackdowns have gone a long way in fuelling a sell-off of stocks with operations in the space, a trend that is expected to continue.Until an amicable solution is found, MGT Capital Investments will continue to experience unexpected spikes as investors try to align their investments with regulations. Right now, it might be time to take a break on the stock until the ongoing storm in the sector calms. For investors that take a long-term view and can withstand the short-term gyrations, look at each dip as buying opportunity.We will be updating our subscribers as soon as we know more. For the latest updates on MGTI, sign up below!Disclosure: We have no position in MGTI and have not been compensated for this article.Image courtesy of Charles Salutan via Flickr