Known for being one of the best digital assets miners, Marathon Digital Holdings (NASDAQ:MARA) has gained plenty of traction over the past year. With the upcoming Bitcoin (BTC-USD) halving anticipated in April, MARA stock has been piping hot, providing impressive returns for investors over the past year. This forms the basis of my MARA stock forecast.
However, Marathon Digital is also a stock with headwinds. In my view, I think there could be other better ways to play the crypto sector, for those looking to diversify into this space.
Here’s why I think Marathon Digital’s growth runway may not be as long as many in this space make it out to be.
MARA Stock and Bitcoin
Bitcoin prices directly impact Marathon Digital’s valuation for a very simple reason – operating leverage. With revenue denominated in Bitcoin and costs/debt denominated in dollars, the BTC/USD exchange rate matters a great deal for the company’s balance sheet, profitability, and cash flows.
This added operational leverage means that when Bitcoin prices move, MARA stock often moves to an outsized degree. Thus, various Bitcoin catalysts or headwinds become the same for Marathon Digital, with this stock largely viewed as a proxy for the world’s largest cryptocurrency.
Herein lies the rub. With the recent approval of spot Bitcoin ETFs by the SEC, institutional investors and money managers now have a direct way to invest in the cryptocurrency, at a lower beta. Big money managers may certainly choose this route for capital preservation and risk management purposes, potentially resulting in capital outflows out of miners like Marathon Digital.
Updates in January 2024
There is some notable news to cover on Marathon Digital to kick off the year. Marathon Digital recently reported some miner installation updates last January. CEO Fred Thiel reported a 7% increase in hash rate to 26.4 exahash, despite temporary disruptions reducing operational hash rate to 19.3 exahash.
Total network rewards decreased by 14% month-over-month, resulting in 1,084 BTC produced, a 42% decrease from December. Thiel assured efforts to address disruptions and expected hash rate improvement.
The team tackled domestic issues while making strides internationally. In Abu Dhabi, a joint venture completed a 250-megawatt deployment with advanced immersion technology. In Paraguay, 2,100 miners are operational, with full deployment expected in Q2 2024.
Following the acquisition of data centers in Texas and Nebraska, the decision was made to terminate Hut8’s operation and assume complete control by April 30. Direct ownership aims to reduce operating fees, enhance bitcoin production costs, and streamline technology implementation for efficiency.
After acquiring the facility in Granbury, Texas, 0.9 exahash of capacity was swiftly added. Engagement with the local community commenced, anticipating a positive partnership. With the acquisition complete and seven exahash of miners ordered, a 30% hash rate growth is projected for the year, aiming for 50 EH/s by 2025.
Why I’m Still Bearish on MARA Stock
Personally, I think the aforementioned headwinds and outsized exposure Marathon Digital provides to Bitcoin prices make this stock a relatively less attractive option for investors, all else being equal. With mining costs set to increase following the upcoming Bitcoin halving (with difficulty surging), it’s unclear if Bitcoin’s price will rise enough to make Marathon’s operations profitable. Thus, there’s just too much uncertainty with this name for me to remotely consider it. This concludes my MARA stock forecast.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.