In the last year, Bitcoin’s price has soared 150% to $70,282. That increase is slightly below the 158% appreciation of Las Vegas-based crypto miner Marathon Digital’s stock.
It’s not all good news for Marathon Digital. The company’s stock took a tumble on February 27 when it reported mixed fourth quarter 2023 financial results.
Things improved a month later. On March 29, the company’s stock rose while topping the list of most actively traded shares, according to Yahoo! Finance.
The emergence of Bitcoin Exchange Traded Funds this January, has contributed to the price of bitcoin.
Shares of Marathon Digital — 16.4% of which were sold short as of March 15 (a 14.4% increase from the month before, according to the Wall Street Journal) — are likely to move in sync with the cryptocurrency — which analysts expect to keep rising.
The next halving — an event that cuts the supply of bitcoin and the reward for mining it — is looming in April.
All of this could help Marathon. But is that benefit already reflected in the company’s stock price? The analyst consensus is yes.
How Marathon Digital Makes Money
Marathon Digital Holdings owns crypto-currency mining machines and a data center — totaling 210,000 mining rigs in 2023 — which the company uses to solve the complex mathematical problems required to create new bitcoins — a process known as mining.
Marathon Digital generates revenue by receiving a reward for mining new bitcoin. In 2023 Marathon generated revenue of $387.5 million — 229% more than in 2022, according to Marathon’s 2023 10-K filing.
Marathon’s revenue increase was driven by two factors:
- A 210% increase in production to 12,852 bitcoin in 2023. Marathon expanded the scale of its operations during the year to boost the company’s daily bitcoin production from 11.4 to 35.2; and
- A rise in bitcoin’s price. Bitcoin’s price increased 6.1% during the period, according to Marathon’s 10-K filing.
In March 2024, the reward for each new bitcoin equaled 6.25 bitcoin plus transaction fees and at the end of December 2023, the price of a bitcoin was $42,288. By March 29, bitcoin’s price had increased by 66%.
As the number of bitcoins created rises to its 21 million maximum, the reward for mining new bitcoin halves roughly every four years. On or about April 19, the reward will again be halved when the so-called block height reaches 840,000, noted Marathon’s 10-K filing.
While the reward was initially 50 bitcoin, the number halved in November 2012 when the block height reached 210,000; halved again in July 2016 at 420,000; and again in May 2020 at 630,000 when the reward reached the current level of 6.25 bitcoin per block.
It is not clear how the April 2024 halving will affect Marathon’s revenues. “Many factors influence the price of Bitcoin, and potential increase or decrease in prices in advance of or following the future halving is unknown,” according to the company’s 10-K filing.
Odds are good the halving could increase bitcoin’s price. The halving “immediately slashes the newly-issued supply by half,” noted TheStreet.com.
“In the past, the event has driven significant price gains and the higher that the bitcoin price is going into the event, the more enthusiasm there will be about a potential bull run in its wake,” TheStreet.com noted.
Marathon Digital’s Mixed Fourth Quarter Report
Marathon’s stock fell 12% after reporting mixed fourth quarter 2023 results on February 27, according to Investor’s Business Daily.
Here are the key numbers:
- Q4 2023 Revenue: $156.8 million up 452% and $2.2 million above forecast, noted IBDIBD.
- Adjusted Q4 loss per share: 2 cents — six cents per share below the 4 cents earnings per share FactSet consensus.
- Q4 2023 bitcoin production: 4,242 — up 452%, IBD reported
- January 2024 total network rewards: down 14% due to a decline in transaction fees, according to IBD.
Why Bitcoin’s Price Is Headed Higher
Bitcoin’s price could go higher. On March 29, Adam Back, the CEO of bitcoin infrastructure firm Blockstream, predicted an Easter Weekend push past the cryptocurrency’s $73,790 price record, according to TheStreet.com.
Back’s call for a record bitcoin price hinged on two factors:
- Traditional markets will be closed — limiting investors who generated hundreds of millions of dollars worth of outflows as they exited the Grayscale Bitcoin Trust ETF, reported TheStreet.com; and
- Crypto exchange Coinbase’s “circuit breaker” which famously encounters “technical difficulties during significant bitcoin price runs, as it did on March 4, 2024,” TheStreet.com noted.
The recent inflows of capital to bitcoin exchange-traded funds have soared.
Assets managed by bitcoin ETFs reached a “staggering” $58 billion, as of March 20 a mere three months after they began trading Jan. 11, the Wells Fargo Investment Institute told MarketWatch. “It took only 57 days for these ETFs to cross $50 billion in AUM – a feat that took spot-based gold ETFs more than five years,” Wells Fargo wrote in a March 20 note.
If bitcoin ETFs continue to see inflows at their current rate, their total AUM could soon pass that of spot gold ETFs, Wells Fargo analysts wrote according to MarketWatch.
What Halving Could Mean For Marathon Digital
Halving creates winners and losers among bitcoin miners.
The halving reduces the rewards for miners. While the halving might boost bitcoin’s price, it also grants miners 50% fewer bitcoins for verifying transactions. At the next halving, “bitcoin’s block reward is expected to be cut from 6.25 to 3.125 bitcoins,”reported Dow Jones.
The winners from halving are the most efficient bitcoin miners. “Halving is a challenge to inefficient miners, such as those who have older, slower machines, or machines that are [exceptionally] electricity consuming, or those who are in places where the electricity costs are high,” Peter Eberle, president and chief investment officer at crypto investment firm Castle Funds, told Dow Jones.
Marathon is likely to be a winner. “Larger companies with strong balance sheets tend to be in a better position during halvings,” Eberle noted. Adam Swick, the company’s chief growth officer, said Marathon has been making sure it has the most efficient machines by preparing for different scenarios, noted Dow Jones.
Marathon would be likely to benefit from a post-halving rise in bitcoin’s price. “If bitcoin’s price doubles and the global hash rate — [the total combined computational power used to mine and process transactions, noted Coindesk] — doubles, the bitcoin miners’ economics are still the same,” Swick told MarketWatch in February 2024.
Eberle said a profitable miner when bitcoin was $15,000 would likely remain profitable “with half as many bitcoins mined at $70,000,” Dow Jones reported.
Marathon Digital’s stock may already reflect much of investors’ expectations for the company’s growth. The bitcoin miner’s average 12-month stock price target is $23.91, according to MarketWatch — representing about 7% upside.
Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.
