Marathon Digital (NASDAQ: MARA) stock is down 15% or so. MARA stock is down because Bitcoin, BTC, is down. That’s just how mining works, the miner is geared to the price of what is being mined. This is true of physical mining just as it is of crypto mining. The price of lithium, or BTC, Litecoin, is whatever it is. The production of the one mine is much the same as that of any other, there are many miners of all of them. Miners are, therefore, price takers – they get simply the market price for their production. If that changes then so do their revenues – simple enough. But their costs – in crypto, their energy costs more than anything – don’t change in line with the market price. Thus changes in BTC feed directly through to the bottom line of Bitcoin miners. Great on the upside, not so much on the down.
Marathon Digital is a bitcoin miner, the bitcoin price is down, so therefore so are MARA revenues and as costs haven’t declined in line then so too are likely gross margins and then net earnings. This is amplified by Marathon having a substantial stock of BTC that it has mined – that asset has also therefore decline in value. The balance sheet takes a hit as well as the P&L.
We admit to liking this analysis. Companies that flit from one fashionable area to another over time do raise a little eyebrow. It’s as if they’re looking for something to do rather than having something that’s worth doing. The financial performance rather backs that up too – Marathon hasn’t been notably good at any of the varied things it has tried over the years.
Marathon Digital Holdings stock price from Google Finance
We’ve looked before at Marathon Digital: “Marathon Digital (NASDAQ: MARA) is up 17%, Riot Platforms (NASDAQ: RIOT) some 10% on the back of the rise in the Bitcoin price. Which makes sense as both are leveraged to that BTC price. Yes, we’re aware that they’re more than merely crypto miners, both of them, but it’s still true that they are leveraged to the Bitcoin price. Their energy costs, their overheads – so, both fixed and variable costs – do not change as the price of their output, BTC, changes. So, a rise in the Bitcoin price feeds through directly to their gross and thus net profit. Or, as the case may be, reduces their losses. So, if Bitcoin goes up in price then the value of these two stocks – so also with other miners – should go up by more than the change in BTC. It’s worth noting that they should also fall by more than any fall in BTC. Because that’s the way leverage does work, both up and down.”
BTC goes down, Marathon goes down. And guess what, Riot is also down 10%. That’s just the way that miners are leveraged to the price of their production.
