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Why Was Cryptocurrency Stock SOS Limited Crashing on Friday?

The Motley Fool logo The Motley Fool 5/28/2021 Jon Quast
a man holding a laptop: Why Was Cryptocurrency Stock SOS Limited Crashing on Friday? © Provided by The Motley Fool Why Was Cryptocurrency Stock SOS Limited Crashing on Friday?

What happened

Shares of SOS Limited (NYSE: SOS) were crashing on Friday even though there wasn't any news from the company. The company has recently moved to mine cryptocurrencies like Bitcoin (CRYPTO: BTC) and the tokens native to the Ethereum blockchain, Ether (CRYPTO: ETH). Both of these digital currencies are down today, which somewhat explains why SOS stock was down 11% during Friday's session. However, it was down more sharply than many other comparable companies.

So what

The stock market opens and closes at specified times, and stock moves are measured between those hours. By contrast, cryptocurrencies can be bought and sold at any time, so we measure their moves over 24-hour periods. As of this writing, Bitcoin is down 8% and Ethereum is down 9%, according to CoinDesk.

a man standing in front of a computer: A visibly frustrated person sees down stock data on his computers. © Getty Images A visibly frustrated person sees down stock data on his computers.

On May 18, SOS announced that it had received more mining machines for mining both Bitcoin and Ethereum. The computing power a company has is measured with a metric called hash rate. According to the press release from the company, its new mining machines give SOS a Bitcoin mining hash rate of 527 peta-hashes per second (PH/s) and an Ethereum mining hash rate of 1,456 giga-hashes per second (GH/s). 

According to Blockchain.com, the total hash rate of the Bitcoin blockchain network is currently over 147,000 PH/s, so SOS' mining operations are still relatively small. However, the hash rate of the Ethereum blockchain network is roughly 600,000 GH/s, according to Etherscan. Therefore, SOS' contribution is proportionally larger.

With both Bitcoin and Ethereum down today, it's not surprising to see SOS stock down. It's just a little surprising to see it down more than its peers. The stock is now down a painful 74% from its 52-week high. However, it's still beating the market averages over the past year.

chart, line chart, histogram: SOS Chart © Provided by The Motley Fool SOS Chart

Video: Ripple CEO finds lack of regulatory clarity in the U.S. over cryptocurrencies 'frustrating' (CNBC)

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SOS data by YCharts

Now what

As a reminder, 98% of SOS' revenue in 2020 came from insurance marketing, not cryptocurrency mining. However, cryptocurrency mining was the company's primary plan for growth going forward.

SOS is based in China, and the government there appears to be upping restrictions on cryptocurrencies, including proposed punishments for mining in China's Inner Mongolia region. To be clear, SOS is headquartered in the Shandong province. However there's a lot of uncertainty for cryptocurrency miners in China right now in general. To summarize, SOS' core business won't be affected by any new government regulations on cryptocurrencies. However, the company's strategy going forward could be in jeopardy. This issue is likely contributing to SOS stock's decline today and will be an issue until there's more clarity out of China.

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Jon Quast owns shares of Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

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