Digital holding of the marathon (NASDAQ:NASDAQ: MARA) suffered the pain of a weak Bitcoin (BTC-USD) price in response to difficult economic conditions that, as usual, hit high-growth assets like Bitcoin.
A major challenge for the Bitcoin miner was to continue growing the number of miners it distributes and increasing its EH / s, which will provide opportunities to mine more Bitcoin.
Much of its short-term performance depends on whether or not the price of Bitcoin will rise significantly in the last quarter of 2022 and 2023. If so, many of the company’s challenges will be solved. And if not, he will likely be forced to sell some Bitcoins to raise capital.
In this article, we will look at the pros and cons of taking a stand in Marathon and why I think it remains an addicting game in the Bitcoin mining industry.
To maintain its competitive edge, Marathon must continue to increase the number of miners it operates in to increase its EH / s. This means that it has to spend a lot more money to do it.
In the first half of 2022, Marathon increased revenue to $ 76.6 million, a 99% increase. At the same time, its net loss rose from $ 25.5 million to $ 204.6 million as miners’ costs increased.
One positive potential is that Bitcoin’s low cost has led a number of its peers to sell some of their miners. If Marathon manages to grab some low-cost miners, it will significantly lower the costs of the miners, who individually were priced at over $ 10,000.
This impacted Marathon’s liquidity, which fell 49% year-over-year to $ 86.5 million. Cash available at the end of August was $ 71.4 million. Even so, a healthy debt-to-equity ratio of 1.2 means you shouldn’t have a problem raising capital if and when needed.
The main risk I see with Marathon is that it may take longer than expected before it returns to a sustainable upward growth trajectory. It has the ability to raise capital and sell Bitcoin if it needs more resources.
I am convinced that once there is more clarity from the Federal Reserve, which is expected to arrive by the end of 2022, it will provide investors with more data to make a more informed decision.
Either way, in my mind there is no doubt that the price of Bitcoin will recover strongly and, when it does, Marathon will take off again. The question is how much pain will shareholders have to endure, and for how long, before it does.
Current Bitcoin mining and manufacturing operations
Marathon recently released updates for August, where it reported that it now has around 34,000 active miners producing nearly 3.2 EH / s. In the next three months the company expects to have another 65,000 powered miners, which is towards the end of November or the beginning of December 2022. This will bring EH / s to 6.9.
Management announced that its S19 XPs benefited from a downward price adjustment; they expect this to continue until the end of the year, which should at least mitigate costs and reduce net losses. If Bitcoin’s price strengthens, this could significantly improve the company’s performance through the end of the year and likely until 2023.
The company claims that by mid-fiscal 2023 it will have enough miners installed to generate around 23 EH / s.
Marathon produced 184 Bitcoins in August, bringing Bitcoin holdings to 10,311, with a fair market value of $ 206.7 million. About 66% of the company’s hash rate is expected to be generated by the S19 XPs, which the company estimates will make them 30% more energy efficient, suggesting lower costs.
The point here is that while initial costs remain a short-term challenge, the company is taking the right steps to reduce costs in the long term by building its mining fleet and increasing its EH / s. If it reaches its target of 23 EH / s in 2023, it positions itself very well for a rebound in Bitcoin’s price.
Because Marathon is holding Bitcoin
The strategy of continuing to hold its Bitcoins may be questioned in light of its rising costs and net losses, but for now I think this is the right thing to do.
Since Marathon has access to capital, there is no point in selling Bitcoin at very low prices, especially when, in my opinion, there is a much greater likelihood of it going higher rather than lower. But if the price falls yet again, I think the bears are starting to lose momentum and any short-term bearish movement would only be temporary. And since Marathon has been among the top companies when it comes to increasing leverage in relation to Bitcoin’s price, as seen in the graph below, I think the company is right in waiting to see where Bitcoin’s price will head in. next three to six months before taking any action to raise capital through the sale of Bitcoin.
Some have asked me why not keep it simple and buy Bitcoin directly? My answer is that you can earn more from Marathon because its stock price has, in the past, surpassed the price of Bitcoin when the price turns bullish.
In reality, investors in this space are expected to hold Bitcoin and Marathon.
Marathon is a highly volatile stock in a highly volatile industry. Investors need to understand that the company’s stock price will experience some wild swings and when these swings are to the downside, it should be seen as a buying opportunity.
As for concerns about its balance sheet and net losses, it seems to me that the company is mitigating those problems and is expected to show solid improvement over the next year.
All in all, when you invest in a Bitcoin mining company like Marathon, you are investing in the price of Bitcoin, as these types of companies are proxies for Bitcoin.
As mentioned above, one of the main reasons I like Marathon is that it offers an opportunity for even better earnings than Bitcoin when Bitcoin’s price turns bullish.
I see no reason why Marathon shouldn’t be doing very well in the next six months. That said, it all depends on where the Bitcoin price goes from here. If for some reason it consolidates and / or falls over a sustainable period of time, then that thesis would change. Due to Marathon’s volatility, I would recommend dollar cost averaging as the best way to take a stand, unless we have another drop in Bitcoin’s price and Marathon’s share price. Under these conditions it would be worth taking a broader position, as the potential rewards would outweigh the risks.