For Better or Worse: Marathon Is a Levered Bet On Bitcoin

Marathon Digital (NASDAQ:MARA) is one of the world’s largest publicly-traded cryptocurrency mining firms. MARA stock rocketed from $25 to $80 last fall as the price of Bitcoin (CCC:BTC-USD) surged to new record highs.

image of many types of cryptocurrency laying on a motherboard
Source: WHYFRAME /

The excitement wouldn’t last long, though. Bitcoin crashed from $70,000 back to $40,000. This has caused a wipeout in the related cryptocurrency stocks. MicroStrategy (NASDAQ:MSTR) is down from $860 to $465 since November. Crypto trading leader Robinhood (NASDAQ:HOOD) has been in freefall. And MARA stock, for its part, is right back down to $25 having given back its entire run-up.

Sliding Crypto Prices

The price of Bitcoin (CCC:BTC-USD) has dropped roughly 40% since its recent highs. There are a variety of factors possibly causing this move, including the Federal Reserve tightening its monetary policy, the sell-off in growth-related assets, and an oversupply of new crypto tokens and projects diluting the overall cryptocurrency market.

Whatever the cause, it’s terrible news for Marathon Digital. That’s because the company has taken an all-in approach to Bitcoin. It is mining tons of coins with its rapidly-increasing amount of computing power. That’s all fine and well. Where things get controversial, however, is its capital allocation decision. Marathon is choosing to retain much of its mined crypto on its balance sheet instead of selling it immediately for fiat. This gives it more exposure to BTC’s price swings.

Cheap Stock… If Crypto Recovers

Marathon was unprofitable in 2021, albeit at a sharply lower operating loss than previously. And that positive momentum was expected to continue into 2022. The analyst consensus has Marathon earning $3.79 per share in 2022 and $3.54 per share in 2023. The sharp rise in earnings would come from Marathon generating far more bitcoins than in 2021 while also seeing the price of bitcoin at substantially higher levels.

However, these estimates are now in doubt. Given Bitcoin’s abrupt plunge, those earnings estimates will likely be revised down sharply in coming weeks and months. If Bitcoin can get back to $60,000 or $70,000 each, Marathon can earn a ton of money and trade at a low P/E ratio.

If it actually generates $3.79 of earnings per share this year, that’s less than an 8x P/E ratio at today’s stock price. But everything depends on Bitcoin making a comeback.

Finally, I’d note that a stock like this will likely always trade at a fairly low P/E ratio due to the high inherent volatility of Bitcoin and the rapid pace at which cryptocurrency mining equipment becomes obsolete. So don’t count on shares going to a particularly elevated P/E ratio even if and when crypto makes a comeback. Still, there’s certainly potential upside from 8x earnings to maybe 12 or 15x if Bitcoin gets going again.

The Kazakhstan Effect

Geopolitical developments may be one partial offset to sinking crypto prices. Over the past week, there’s been a series of protests in Kazakhstan that led to tremendous civil unrest in that country.

Overall, at least 164 people were killed in these disturbances. Additionally, government forces detained almost 8,000 people. It’s unclear what the path forward politically is for the country following this uprising. Further to that, the internet entirely crashed in Kazakhstan for an extended period.

This is where the impact on Bitcoin kicks in. Kazakhstan is traditionally the world’s second-largest cryptocurrency mining country, following only the United States. In the immediate wake of the national internet outage, Bitcoin’s hash rate dropped more than 10%, meaning that a substantial amount of computing power left the BTC network.

If this continued for an extended period, it’d be bullish for Marathon and other crypto mining companies. With 10% less competition to deal with, Marathon would mine a substantially higher number of coins from the same amount of computing power. That would boost revenues and profit margins.

However, as of January 10, Kazakhstan’s internet access has largely been restored and much of the dark bitcoin mining equipment has come back online. For now, at least, the potential tailwind for MARA stock is diminishing. That said, the political situation in Kazakhstan is fast-developing, and its bitcoin equipment could go offline again at a moment’s notice.

MARA Stock Verdict

In a recent investor presentation, Marathon stated that it is “Increasing BTC Production & Hodling”. Hodl, for those unfamiliar, is a bit of crypto-speak for holding onto a position regardless of short-term price action. The fact that Marathon used hodl on its investor deck should give you a sign of the company’s mentality; the company is all-in on Bitcoin.

If Bitcoin prices rip back to new all-time highs, MARA stock should be one of the biggest winners in the crypto equity space. However, there’s little indication that management will engage in much hedging or risk management if the price of Bitcoin continues to slide. This makes MARA stock a high risk, high reward bet on Bitcoin’s next move. With that in mind, place your bets if you’re feeling bold.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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