Summary Marathon Digital has an ambitious plan for 2023, and so far has delivered. The competition is still fierce in this industry. I believe MARA could have put in a significant long-term bottom. Thesis Summary Marathon Digital ( MARA ) is one of the largest Bitcoin (BTC-USD) miners in North America. The company recently reported its latest results and showed some encouraging production numbers in the last month. The price of MARA is strongly correlated to that of Bitcoin, and the stock price has shown it can produce gains above and beyond Bitcoin’s appreciation. Technical analysis suggests we could reach a top in the next cycle of over $200. Overview Marathon has a simple enough business model. Buy mining hardware and mine Bitcoin. Their revenue is the value of the Bitcoin they mine. This is determined by how many Bitcoins they can mine, which depends on their hash rate, and the dollar price of Bitcoin. On the cost side, we have energy and depreciation as the two main ones. However, there is also G&A and other expenses. Here’s the most recent income statement: MARA revenues (Earnings Release) As we can see above, the company has not managed to break even yet. Even at the height of Bitcoin’s price. This affects not only their income, but also the value of their balance sheet, which is mostly made up of Bitcoin. BTC on Balance sheet (Earnings release) The question moving forward is how Marathon can perform. First off, will they be able to carry out their ambitious expansion plan, and what are the possible risks? Strength and Opportunities MARA has ambitious plans to expand in 2023: MARA earnings release (earnings release) The company projects it can reach 23 EH/s by the middle of 2023. This will be achieved through an “asset-light” model. MARA earnings release (Earnings Release) Basically, the company intends to focus on acquiring top-tier miners, and relying on partnerships in order to find the best hosting, energy and real estate available. Indeed, this gives Marathon maneuverability but also opens the door to other risks. So far this year, the company has executed well, posting a solid 45% MoM increase in its BTC production. MARA hash rate (Earnings release) To sum up, Marathon’s strengths come from its large Bitcoin holdings, its asset light model, and also the fact that over the crypto winter, other big mining companies have capitulated, such as Core Scientific, lowering competition and freeing up resources. Weaknesses and Threats First, despite its advantages, the asset-light model also has drawbacks. Marathon is giving up control over important factors, and though this can be mitigated by having good partnerships, there’s always risk involved. For example, a few months ago, one of Marathon’s main hosting providers filed for bankruptcy. Another added risk factor for Marathon is its large debt load, especially when compared to its light assets and equity. The current debt-to-equity ratio is over 125%. This is especially significant as we enter a prolonged period of higher interest rates. Another issue for Marathon and the mining sector as a whole, is the increased competitive landscape if we look at Bitcoin’s hash rate. BTC hashrate (coinwarz) Even at weaker prices, BTC’s hash rate has continued to make all-time highs, showing just how much interest there is in Bitcoin mining. Technical Analysis As of right now, all options are on the table. Marathon TA (Author's work) Ideally, I would have liked to see Marathon attempt to reach the 61.8% retracement of the large wave 1, which is at around $2,5. However, we've seen a strong impulse take hold, and the possibility of a 1-2 to begin this larger degree wave 3 is now on the table. We are now retracing in wave 2, and if we can break above the recent wave 1 high, that’s strong evidence that a bottom could be in. However, the real test will be the $10-$12 area, where we have some strong resistance. For now, I am adding some Marathon to the stock portfolio, but leaving some cash with the hopes of doubling down at new lows or once I am more confident in the bull market. Takeaway Marathon will do well if Bitcoin does well, and it should be able to amplify returns of Bitcoin like it did in the last cycle. However, a business always carries more risks than just owning Bitcoin, so invest at your own risk.
