Stock Analysis & Ideas

Marathon Digital: May Experience Tailwinds as Bitcoin Bounces

With Bitcoin’s price starting to bounce back after touching a 2022 low of roughly $33,000 in January, small and large publicly-traded crypto miners rebounded as well. One of the biggest miners among these, Marathon Digital Holdings (MARA), is currently more than 20% above its lows. There are a number of key reasons for this.

Marathon Digital’s hash rate (its computing power/Bitcoin mining capacity) has been steadily increasing. Recent reports highlighted Marathon’s hash rate increased 10%, coinciding with positive stock price moves. Of course, the increasing price of Bitcoin and overall bullish sentiment in this space play a big role as well.

With Marathon, a crypto miner with a growing market share, and higher Bitcoin prices, there are reasons to be bullish. Personally, I see too much volatility in this space to take a bullish or bearish stance. Therefore, I am neutral. However, for those with the willingness to take a side, there’s a lot of potential upside (or downside) to be captured with this company.

Let’s dive into a few things investors are watching with this company.

Marathon: Growth in Mining Power

Marathon’s recent earnings were driven by the company’s aforementioned hash rate growth. In fact, the company’s total Bitcoin mined surged more than 800% on a year-over-year basis, as installed capacity increased across the company’s network.

Marathon brought in 462.1 self-mined Bitcoin in January, relative to only 50.4 Bitcoin mined during the same month last year. These announced production numbers have also provided a near-term boost, as investors forecast what the company’s numbers could look like this quarter and beyond.

As long as the company’s mining power continues to grow, there’s a lot to like about how Marathon is positioned right now. This Bitcoin miner remains one of the top global players and has a growing war chest to boot. The company noted its Bitcoin holdings and cash amounted to about $520 million and $189 million, respectively, as of the end of January. Those are some pretty impressive numbers.

The existing mining fleet of Marathon Digital comprises 32,710 active miners generating around 3.6 EH/s. It’s expected that Marathon will have around 133,000 such miners operational by sometime mid-year. MARA’s more than quadrupling of mining power should continue to provide strong support for this company. That is, should Bitcoin prices remain elevated.

Cryptocurrency Regulations on the Way and SEC Investigation

A number of recent reports highlight concerns that the Biden administration is gearing up to release a government-wide plan for crypto regulation. This report could come in the next few weeks and provide more insight into how the government intends to watch this sector.

The National Security Council will command the federal agencies to assess the opportunities and risks of cryptocurrencies. Accordingly, it’s expected that several agencies will have to submit reports in the second half of this year. 

Now, with this backdrop, it’s important to point out that MARA stock plunged 27% on Nov. 15 after the company announced that it received a subpoena from the SEC. The Securities & Exchange Commission has asked Marathon and some executives to produce communications and documents regarding the Hardin data center facility.

With the regulatory environment still uncertain in the crypto world, this is a headwind investors in Bitcoin mining stocks will need to factor in. There’s always the possibility that the government may look at the energy consumption of this sector and deem it unfit for business. Until then, it’s “party on” for Marathon and investors in MARA stock.

Wall Street’s Take

Turning to Wall Street, MARA comes in as a Strong Buy. Out of five analyst ratings, there are five Buys. The average Marathon Digital price target of $55 implies 133.4% upside potential. Analyst price targets range from a high of $65 per share to a low of $50 per share.

Bottom Line

Bitcoin mining is still a very profitable business, as shown by Marathon’s recent numbers. Of course, how long this can continue remains to be seen. For now, this is a sector many investors remain bullish on.

Bears note that there may be too much long-term uncertainty with this sector to warrant an investment of any significant time frame; Fair enough. It’s an uncertain market, and the future of Bitcoin mining is something that’s being debated right now in many jurisdictions.

It appears the jury is still out as to which direction MARA stock will trend this year. For now, there’s some bullish momentum. Whether it can last is a whole other question.

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