Marathon Digital: Buy The Dip Before Bitcoin Fear Turns Into Greed
$MARA
Marathon Digital Holdings remains one of the top Bitcoin mining companies despite a massive drop in Bitcoin prices.
Bitcoin is a historically volatile asset that incurs massive price swings. You will get the best prices on Bitcoin related stocks when Bitcoin fear is at its peak.
The company remains on track to deploy 199,000 Bitcoin mining machines by early 2023, making it one of the largest Bitcoin mining companies in the world.
Marathon Digital Holdings (MARA) is still my favorite Bitcoin (BTC-USD) mining company despite a massive drop in share price since the November 2021 tech bubble popped.
The Federal Reserve hinted at its desire to raise interest rates and capped the growth stock rally because it will cost companies like Marathon more money to raise capital.
Thus, MARA stock is down a whopping 53% since November 21 with no exact bottom in sight.
Marathon price % change
Data by YCharts
(Source: Ycharts)
The funny thing is Bitcoin mining production reached an all-time high in December but investors dumped MARA stock anyway.
However, Benjamin Graham said it best with his infamous quote about the stock market:
"In the short run, the market is a voting machine but in the long run it is a weighing machine".
In this article, I'll explain why I'm still HODLing my Marathon shares while other investors are panic selling.
I strongly believe the majority of the money will be made as we progress towards mass Bitcoin adoption and hyperbitcoinization so it makes little sense to sell at these levels if you're a long-term investor.
Marathon Digital Holdings Bitcoin Mining Update
First off, I want to dig into the latest Bitcoin mining updates for Marathon because I'm more interested in future Bitcoin flows rather than the current price of Bitcoin.
In 2021, Marathon mined 3,197 BTC (Up 846% YOY) and achieved a record 484 BTC mining output in December 2021.
This is an extremely impressive BTC mining output that can only be appreciated if we perform a side-by-side comparison of Marathon's mining output vs. other publicly traded miners.
Marathon Digital 2021 Mining Output vs Competitors
Company 2021 BTC Mining Production
Bitfarms (BITF) 3,492
Core Scientific (CORZ) 5,769
CleanSpark (CLSK) 1,528
Greenidge Generation Holdings (GREE) 1,866
Marathon Digital Holdings (MARA) 3,197
Riot Blockchain (RIOT)
3,812
Source: Author
Marathon finished the year with the 4th highest BTC mining production among publicly traded stocks but still holds the largest amount of BTC with 8,133 in total.
The company has plans to increase its Bitcoin mining output by 6x by early 2023 with the deployment of just under 200,000 miners producing approximately 23.3 EH/s.
Marathon Digital Holdings Bitcoin Mining Update
Marathon Q4 Mining Update
In Q3 2021, Marathon earned 43 cents per share with its Bitcoin mining operations but lost money due to $95.7 million in stock-based compensation.
Total losses reached 22 cents per share but I expect Marathon to swing back to profitability in Q4 2021 as well as moving forward.
Bitcoin's Recent Crash Will Scare off Retail Investors
The biggest problem with Bitcoin mining stocks is the recent crash in Bitcoin's price since many retail investors bought stocks like MARA at the top of the bubble.
Bitcoin price chart
Data by YCharts
(Source: Ycharts)
Just a few months ago, Marathon Digital Stock hit $80 per share and now some investors are suffering 66%+ losses if they bought at the top.
Bitcoin is a volatile asset that often has massive 50%+ price swings within a fiscal year. Crypto is still a very young asset class and Bitcoin itself is only 13 years old.
I believe Bitcoin will slowly mature into a much more stable asset once more people join the network and adopt the best form of digital money in my opinion.
Until then, investors shouldn't fear volatility but instead profit from it by scooping up high-growth Bitcoin miners with solid balance sheets.
Accumulate Bitcoin Related Companies During Periods of Extreme Fear
The Crypto Fear and Greed Index is one of the best indicators for buying Bitcoin-related stocks.
Short-term investors trade based on emotions instead of underlying fundamentals so we can look towards periods of extreme fear as wonderful long-term buying opportunities.
As I type this article, the Crypto Fear and Greed Index is sitting at 24 due to lots of uncertainties surrounding the Fed raising interest rates, rising Omicron cases, and lack of interest in the cryptocurrency industry at the time.
Nothing has changed the fundamentals of Marathon and its goal to become arguably the largest Bitcoin mining company in North America.
Once Bitcoin goes back up in price then MARA stock could easily double or triple in price based on its current valuations.
MARA stock trades just under a $3 billion market cap with a price to sales ratio of 61. However, we can account for Marathon's 6x in mining output by the end of 2022 once all 199,000 mining machines are deployed.
2022 total revenue should exceed $500 million and could hit $1 billion+ if Bitcoin returns to all-time highs.
With nearly $1 billion in potential annual revenue by 2023, MARA stock trades at a future price to sales ratio of just 3!
Marathon holds around $580 million in total cash holdings (Bitcoin along with cash) so I don't think future dilution is a major issue.
Risk Factors: Lower Bitcoin Prices and Dilution Through Capital Raises
Marathon owns more Bitcoin than every other publicly-traded company other than MicroStrategy (MSTR) and Tesla (TSLA) so the company has built a rock-solid crypto foundation.
However, there are several risk factors that could severely impact MARA's stock price in the short term.
The most obvious issue is Bitcoin's price because Bitcoin miners benefit from rising Bitcoin prices but watch their balance sheets crumpled during a crypto bear market.
If Bitcoin enters a bear market then historically it only lasts around 1 year until a new bull cycle starts. That means MARA stock could underperform the broader market over the 12 months. Assuming the Fed raises rates in March, it won't be a strong year for Marathon if Bitcoin continues selling off.
Another major risk is dilution through convertible bonds or stock offerings. Bitcoin mining companies prefer offering shares when stock prices are soaring to raise capital for mining fleet expansion.
The problem is you own a smaller part of the company and your equity stake gets diluted. Any Bitcoiner will tell you that owning an asset with a fixed cap like Bitcoin is better than investing in dilutable assets like stocks.
If Marathon Digital continues issuing more shares then it may be a better move to just buy Bitcoin instead of investing in Bitcoin mining companies.
However, Bitcoin mining companies will soar in value as Bitcoin overtakes Gold's market cap within the next few years.
For example, Barrick Gold (GOLD) has a 15x larger market cap than Marathon Digital but I expect Marathon and other Bitcoin mining companies to flip gold miners by 2025.
Marathon digital and Barrick Gold: market cap
Data by YCharts
(Source: Ycharts)
Once Bitcoin flips gold then investors will witness the biggest FOMO ever as retail and institutional investors pile into Bitcoin mining companies with reckless abandonment.
It should be an epic sight. Let's wait and see what happens!
Conclusion
I first bought MARA stock at $8 and still hold my original shares. Many investors may feel frustrated with the recent price volatility but Bitcoin will remain volatile for at least a few more years until the BTC network hits 1 billion or more users.
I believe every investor needs at least 10% exposure to Bitcoin in their investment portfolio so MARA stock provides plenty of BTC exposure without the risks of holding Bitcoin outright.
I'm buying the dip and plan to sell covered calls on my shares to generate income while I wait for the next Bitcoin bull run.
In the meantime, I encourage lower stock prices as long as Marathon remains committed to increasing hash rate and total BTC mining output.
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