MARA Stock: Is Marathon Digital Holdings A Buy As Bitcoin Slumps?

Marathon is a digital asset technology company that mines cryptocurrencies, focusing on the blockchain ecosystem and the generation of digital assets.

The company started out in 2010 as Marathon Patent Group, when it began collecting patents related to encryption. MARA stock began trading in 2013. On March 1, 2021, the company changed its name to Marathon Digital Holdings. On April 26, 2021, Fred Thiel replaced Merrick Okamoto as CEO. The company announced Dec. 15, 2021, that Okamoto was stepping down as chairman at the end of 2021. Thiel became chairman on Jan. 1, 2022.

Marathon Digital provides the computing power needed to mine Bitcoins. Bitcoin mining consists of processing, or validating, transactions. The speed at which a digital currency miner processes transactions is called hash rate. The faster a miner can process transactions, the more revenue it generates.

Marathon Digital is paid in Bitcoin for mining. The company can then sell this Bitcoin to generate revenue. Marathon Digital also funds its operations through financing.

The price of Bitcoin has slumped 25% in the last month to around $30,000 in mid May. Bitcoin previously surged to around $44,249 on March 1, 2022, as governments around the world intensified economic sanctions on Russia for invading Ukraine. Some experts believe Bitcoin could be seen as a safe haven for Russians and Ukrainians to get money out of their respective countries.

Big institutional investors have also poured into Bitcoin, pushing up prices. However, more recently, it appears those same institutional investors could be dragging down digital currencies, with their movement more closely mimicking the stock market.

MarketSmith shows MARA stock has an Accumulation/Distribution grade of B-, which indicates strong buying by institutional investors. However, with 24% fund ownership, the number of funds that own MARA stock has fallen to 306 in March 2022 vs. 315 in December 2021.

CEO Open To Acquisition

In a March 31 interview with Bloomberg, CEO Thiel said he would consider an offer at “the right price.”

“If somebody offers us a huge premium over our market cap, I have to take it under consideration, and that may be the right thing to do for the investors,” he added.

Thiel says energy firms are in prime position to take over Bitcoin miners.

“A generating company can sell their electricity to themselves at a lower cost, so they would be the most profitable Bitcoin miner over time,” he explained.

Crypto Regulations Coming

President Biden on March 9 signed an executive order calling on the federal government to examine the risks and benefits of cryptocurrencies.

“The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate,” the White House said in a statement.

The order lays out a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.

MARA stock gapped up 14% on the news.

Marathon Digital’s Mining Power Grows

On March 4, Marathon reported it produced 360.3 self-mined bitcoin during February 2022, a 729% increase from 43.4 self-mined bitcoin in February 2021.

The company said it increased total bitcoin holdings to around 8,956 BTC with a fair market value of approximately $386.8 million.

Marathon has about $106.4 million in cash on hand. Total liquidity, defined as cash and bitcoin holdings, was approximately $493.2 million.

The company said it received some 7,600 top-tier ASIC miners from Bitmain in February, adding to its existing mining fleet of 35,510 active miners.

The company expects to have about 133,000 operational miners by mid-2022.

Nevertheless, earlier this year, B. Riley analyst Lucas Pipes slashed price targets for crypto miners Marathon Digital, Riot Blockchain (RIOT), Greenidge Generation (GREE) and Stronghold Digital Mining (SDIG) due to higher-than-expected capital costs, he said in a note to clients.

SEC Investigation

Marathon Digital stock tumbled 27% on Nov. 15, 2021, after it said in a filing that it had received a subpoena from the Securities & Exchange Commission. The SEC is asking the company and certain executives to produce documents and communications concerning the Hardin, Mont., data center facility.

“We understand that the SEC may be investigating whether or not there may have been any violations of the federal securities law,” the company said in the filing. “We are cooperating with the SEC.”

On Oct. 6, 2020, Marathon Digital entered into a series of agreements with multiple parties to design and build the Hardin data center. As part of the deal, it issued 6 million of restricted Marathon common shares as part of the deal.

Marathon Digital also said on Nov. 15, 2021, that it intends to raise $500 million in senior convertible notes to buy more Bitcoin and Bitcoin miners.

MARA Stock Technical Analysis 

Marathon Digital was forming a bearish head-and-shoulders pattern in early April 2021. But the stock went south from there, and no new pattern has formed.

MARA shares are closely tied to Bitcoin prices, so they have been on a wild ride. MARA stock hit a 52-week high of 83.45 on Nov. 9, 2021. Shares are now trading well below their 50-day line, according to MarketSmith chart analysis.

Shares fell as much as 5.5% on June 21, 2021, as Bitcoin’s value dropped to below $33,000 amid an intensifying Chinese crackdown on Bitcoin mining. On Sept. 24, 2021, China banned all cryptocurrency transactions. The move sent the value of Bitcoin down $2,000.

Meanwhile, the Biden administration on July 15, 2021, said it formed a task force to crack down on the use of cryptocurrency in ransomware attacks. Its effort will focus on tracing proceeds paid to hackers.

But the launch of a Bitcoin futures ETF and the prospect of others to follow fueled the crypto’s race to a fresh high on Oct. 20, 2021, to above $66,000.

MARA stock popped 19% to an all-time high of 75.96 on Nov. 8, 2021, as the price of Bitcoin surged 6.8% vs. 24 hours prior, to $84,107. However, Bitcoin prices then dropped more than 30% to $58,635 on Jan. 4, 2022.

MARA stock’s relative strength line  is trending downward.  Marathon Digital has an RS Rating of 4 out of a best-possible 99 and a Composite Rating of 27.

Wall Street Interest

But Wall Street was keen to add MARA stock to holdings in 2021. A bunch of Bitcoin ETFs hit the market last year. On Oct. 19, 2021, ProShares Bitcoin Strategy ETF (BITO) began trading on the NYSE, while Valkyrie Bitcoin Strategy ETF (BTF) started trading Oct. 22, 2021.

The SEC also approved on Oct. 5, 2021, the Volt Crypto Industry Revolution and Tech ETF, in which MARA stock is expected to be among the holdings.

According to ETF.com, BlackRock’s iShares Russell 2000 ETF (IWM) is the top holder of MARA, with 2.26 million shares. Meanwhile, BlackRock’s iShares Russell 2000 Value ETF (IWN) has around 962,000 shares.

BlackRock (BLK), the world’s largest asset manager, said it had taken a 6.6% stake in the company. Vanguard Group has 9% ownership.

Fidelity will spread the shares of the mining firm across four index funds: Fidelity Extended Market Index Fund (FSMAX), Fidelity Nasdaq Composite Index Fund (FNCFX), Fidelity Total Market Index Fund (FSKAX) and Fidelity Series Total Market Index Fund (FCFMX).

MARA Stock Fundamental Analysis 

Revenue surged 465% to $51.7 million from the prior-year quarter, essentially in line with estimates, but slowed 14% sequentially.

Bitcoin production increased to 1,259 bitcoin during the period, a 556% increase from the prior-year quarter and a 15% increase from the fourth quarter of 2021.

The revenue decline from the fourth quarter of 2021 was the result of an approximate 25% decrease in average revenue per bitcoin mined, partially offset by the increase in bitcoin production during the first quarter of 2022, management said in a statement.

Despite higher earnings contributions resulting from the expansion of the company’s bitcoin mining operations, it posted a non-GAAP net loss of 2 cents a share, below estimates for 23 cents.

The current-year quarter includes $19.6 million impairment charges related to self-mined bitcoin held by the company and a $5.5 million decrease in the fair market value of the company’s investment fund. 

Marathon Digital Holdings increased total bitcoin holdings to 9,673 BTC with a fair market value of $365.5 million.

It produced 299 self-mined bitcoin during April 2022, a decline from the prior month largely due to ongoing maintenance and downtime at the power plant in Hardin, Mont., reducing April’s potential bitcoin production by approximately 30%.

Cash on hand was around $40.4 million and total liquidity, now defined as cash and available credit facilities, was about $70.4 million.

Year-to-date, Marathon’s mining fleet has produced 1,558 bitcoin, a 340% increase over the same time period in the prior year.

The company installed 4,183 miners, representing approximately 0.4 EH/s, in containers at a new facility in Texas. It’s now operating a mining fleet consists of 36,830 active miners.

With losses still piling up, MARA stock has an EPS Rating of 31 out of a possible 99.


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Is MARA Stock A Buy Now?

The volatility of MARA stock, largely due to its link to Bitcoin, makes it a risky investment. Marathon Digital also has no track record yet of strong, consistent earnings and revenue growth.

Bottom line: Marathon Digital is not a buy as it has not formed any discernible pattern. Investors could have considered jumping in as it appeared to break a trendline with 44.97 as a resistance area, before it took off and became extended. But the stock plunged 27% on Nov. 15, 2021, after it reported an SEC probe into the company. Still, investors should keep an eye on MARA stock, as it has amassed an impressive arsenal of computing power.