The crypto sector has been highly volatile as of late. This sector has gone from what many termed a “crypto winter” to somewhat of a spring of late. Crypto prices are rebounding, leading to bullish price appreciation for most crypto miners. Following a big dip earlier this year, Marathon Digital (MARA) now seems to be on the rise.
As Bitcoin prices continue to fluctuate, crypto miners are likely to continue to see volatility. However, Marathon’s unique business model has fans of crypto-mining acting bullishly.
Currently, Bitcoin’s (BTC-USD) price is hovering around $45,000 per token. Just a few weeks ago, that price was nearing the $30,000 mark. In the larger context of things, Bitcoin hit $69,000 per token late last year, meaning this token has been incredibly volatile over the past few months. This volatility has bled into the stock prices of Bitcoin miners, such as Marathon, this has bled.
Crypto miners have extremely high leverage to Bitcoin prices, due to the fact that their revenues and cash flows are denominated in Bitcoin, while their expenses and debt are largely denominated in U.S. dollars. This provides for volatility when the BTC-USD exchange rate is fluctuating rapidly.
Right now, mainly due to this volatility, I’m neutral on Marathon, and other Bitcoin miners. Let’s take a look at what investors are watching with this stock right now.
Marathon Digital Creating an Impressive Number of Bitcoins
Bitcoin mining is the process of validating and securing the Bitcoin blockchain. Via specialized computers, companies like Marathon can solve complex computational math problems first, to perform this validation. These companies receive rewards in the form of transaction fees and Bitcoin for doing so.
According to Marathon’s December report, these rewards have been lucrative. The company reported a rather impressive haul on Bitcoin production, mining around 484.5 Bitcoin in December. This amounts to approximately $21 million at Bitcoin’s current valuation.
Over November’s numbers, Marathon’s clearly picked up the pace with its mining activities. The company more than doubled its output over the previous month, which was only 196 Bitcoin mined. According to the December report, experts estimate that Marathon alone mined almost half of all the Bitcoin in Q4.
But that’s not all. Marathon has announced plans to add another 78,000 mining machines to its network. This increase in mining capacity is likely to generate even more of a market share lead for Marathon. This is a key reason why many investors hold this crypto miner, relative to its peers.
What’s Up with MARA’s SEC Subpoena and Convertible Debt Offering?
MARA’s $650 convertible debt offering is burning massive cash to expand its mining operations. These notes carry an interest rate of 1% and will mature on December 1, 2026. They also feature an initial conversion rate of $76.17 a share, above 40% of its current market price.
Investors typically dislike convertible debt offering because it may dilute a company’s equity and increase its leverage. However, Marathon Digital’s debt to equity ratio approached 0 during Q3’s end. It is expected to remain just less than 1.0 after the offer closes. Therefore, investors who believe Marathon’s long term plans likely will not be concerned.
An SEC subpoena was handed down to expire a deal with Beowulf Energy and other parties to build a center in Hardin, Montana in 2022. The SEC appears to be looking into whether Marathon was in violation of securities law in issuing restricted common stock to carry out those deals. While this matter appears to be ongoing, this is a headwind some investors remain wary of with MARA stock right now.
What Are Analysts Saying About MARA Stock?
As per TipRanks’ analyst rating consensus, Marathon Digital is a Strong Buy. Out of 4 analyst ratings, there are 4 Buy recommendations.
This stock has an average Marathon price target of $54.00, implying an upside of 100.5%. Analyst price targets range from a high of $65 per share to a low of $50 per share.
Bottom Line
As far as Bitcoin miners go, there’s a lot to like about how Marathon is positioned right now. This is one of the largest Bitcoin miners in the world, for a reason. The company is aggressively expanding, looking to capture as much of the market as possible. In addition, the company’s Bitcoin holdings on its balance sheet are impressive.
That said, there are issues with this company that investors continue to watch. What the future holds for the crypto sector, and in particular Bitcoin miners, remains to be seen. However, this is a space that’s best reserved for only the most aggressive investors right now.
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