Bitcoin has witnessed significant volatility in the last three months. After touching highs of $64,800, the cryptocurrency dropped to lows of $29,600. However, bitcoin has again risen to $40,000 in a few trading sessions.
Amidst the volatility in bitcoin, Marathon Digital (MARA) has trended higher by over 150%, as of year-to-date 2021. It seems that the positive momentum for MARA stock is likely to sustain in the coming quarters. Current levels of $28.23 therefore look attractive.
It’s worth noting that Bitcoin corrected sharply after Elon Musk raised concerns related to the environmental impact of Bitcoin mining. However, Musk recently said that Tesla (TSLA) is likely to start accepting Bitcoin again as a payment method for vehicles. This news triggered a rally for the cryptocurrency.
Another important point to note is that institutional cryptocurrency holding has been surging. Coinbase (COIN) already has 8,000 institutional customers. The institutional cryptocurrency assets held in the company’s platform have increased to $122 billion in Q1 2021 from $6 billion in Q1 2020. This seems to be a clear indication of a rising adoption of bitcoin. (See Bitcoin stock comparison on TipRanks)
Overall, it seems very likely that Bitcoin will survive as an asset class and sentiments still remain bullish. Marathon Digital is possibly among the top stocks to consider for a proxy exposure to bitcoin. (See Marathon Digital stock charts on TipRanks)
Impact of China’s Bitcoin Mining Ban
For Marathon Digital, the cryptocurrency mining ban by China seems like good news. It’s worth noting that China accounted for 65% of the world’s bitcoin mining.
Overall, 900 new bitcoins are mined on a daily basis and the allocation depends on the share of the total hash rate. With the mining ban in China, the share of the total has rate will increase for bitcoin miners outside the country.
Therefore, even with the same number of miners, Marathon Digital is likely to produce more bitcoins per day. This is likely to have a positive impact on revenue and cash flows, particularly as Marathon Digital is significantly increasing the number of miners over the next few quarters.
Strong Revenue Growth for Marathon in 2022
In June 2021, Marathon mined 265.6 new bitcoins and the company deployed 19,395 miners. The company has an ambitious plan to increase the number of miners to 103,120 by Q1 2022. This would represent 6.4% of the global bitcoin hash rate (pre-China’s bitcoin mining ban).
By the company’s own estimates, 55 to 60 bitcoins are likely to be mined on a daily basis once the expansion is completed.
At a bitcoin price of $55,000, this will translate into $94.4 million in monthly revenue. In other words, Marathon is positioned for annualized revenue in excess of $1.0 billion once the expansion is completed.
On the flip side, the annual revenue is likely to be lower if bitcoin trades at around current levels. However, it’s also worth noting that the company has been holding the cryptocurrency in the balance sheet. Opportunistic selling is likely once bitcoin trends higher again.
Another important point to note is that as of June 2021, the company reported total liquidity (cash and bitcoin holdings) of $372.2 million. Going forward, there is likely to be ample financial flexibility for pursuing continued aggressive growth.
Wall Street’s Take
According to TipRanks’ analyst consensus rating, MARA stock comes in as a Strong Buy, with 3 Buy ratings assigned in the last three months.
As for price targets, the average Marathon price target is $48.00 per share, implying around 70% upside potential from current levels.
Concluding Views
Marathon Digital is on-track for significant revenue acceleration in the next 12-18 months. This is likely to translate into stock upside as margins improve and cash flows swell.
As expansionary monetary policies continue globally, assets like gold and bitcoin will continue to be seen as inflation hedges. Marathon will benefit, as the company’s bitcoin holding is likely to increase significantly in the next few years.
Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
