The Crypto Rally: Marathon Digital Is The Best Bitcoin Mining Stock To Buy (NASDAQ:MARA)


asbe/E+ by way of Getty Pictures

It has been a difficult begin to the yr for crypto with Bitcoin (BTC-USD) dealing with a pointy correction from its all-time of $69k in November. We sense that cryptocurrencies as an asset class bought caught up within the broader market volatility notably amongst extra speculative segments of tech forcing a reset of valuations. Nonetheless, we spotlight that Bitcoin has quietly rallied by greater than 33% from its low in January to a present stage of $44k serving to to elevate the sector with a brand new increase of momentum. The setup right here is attention-grabbing for crypto mining shares which have confronted even deeper selloffs however are well-positioned to learn from upside in Bitcoin pricing going ahead. We focus on the motion within the group and spotlight our high choose.

The Attraction of Bitcoin Mining Shares

Bitcoin mining shares with an extended sufficient buying and selling historical past have been in a position to outperform Bitcoin. Whereas BTC is up by about 346% from its stage in February 2020, business pioneers that had been early within the recreation like Marathon Digital Holdings Inc (MARA) with a +2,300% acquire, Riot Blockchain Inc (RIOT) up 1,220%, together with Hut 8 Mining Corp (HUT), Hive Blockchain Applied sciences Ltd (HIVE), Bitfarms Ltd (BITF), and Bit Digital Inc (BTBT) have all been “multi-baggers” over the interval. The attraction of the enterprise mannequin is the flexibility to successfully mint an appreciating asset whereas benefiting from favorable manufacturing stage economics.

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The opposite aspect to the idea generally known as working leverage is the understanding that the worth of the manufacturing is uncovered to the chance of declining costs. Certainly, in comparison with the selloff in Bitcoin, mining shares as a bunch underperformed with bigger losses, many down by greater than 50% over the interval which additionally considers deflating valuation premiums.

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What’s vital right here is that for many of those firms it has been enterprise as regular past the wild swings of their inventory costs. Our takeaway from the chart above is that a number of miners are “low-cost” on the present stage with some room to slender the unfold vis-a-vis Bitcoin.

The theme for Bitcoin mining in 2022 is critical manufacturing progress with firms ramping up output from investments revamped the previous yr. The consequence interprets into larger ranges of mined Bitcoins and income potential. The section stays excessive progress with a constructive outlook whether or not the worth of Bitcoin is at $30k, $40k, or larger. We’ve got confidence that Bitcoin mining shares can find yourself outperforming Bitcoin to the upside as a part of the bullish case.

The High Bitcoin Miners

The chance for Bitcoin miners is critical contemplating 328,500 Bitcoins are anticipated to be minted from the community protocol over a full yr representing a present market worth of round $15 billion. BTC at $60k can push that worth in direction of $20 billion. The miners with a bigger community hash fee stand to seize an rising share of the pie.

From the present community issue at 204 EH/s, a miner with 1 EH/s in capability is predicted to regulate 0.5% of the community translating to about 4.5 BTC in manufacturing from the community reward amongst ~900 BTC created every day. For a 1 EH/s miner, we are able to estimate an annualized Bitcoin manufacturing run fee of round 1,642 BTC representing about $72 million in income at a present market value of $44k. From there, we are able to take every miner’s reported capability and hash fee targets to forecast their manufacturing ranges and implied potential income.

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Then again, the miners including hash fee capability find yourself diluting the share for everybody else. For that reason, it is anticipated that the community issue will proceed climbing over time. The understanding is that if the person miners can improve capability quicker than the community or the worth of Bitcoin continues to climb, the operation stays viable.

We’re monitoring round 20 names that we imagine characterize “pure-plays” on Bitcoin mining. From the record beneath, needless to say it isn’t meant to be all-inclusive. There’s an excellent bigger group of firms with a broader deal with “blockchain applied sciences” or associated providers together with some firms that will even have smaller mining operations.

miners metrics

supply: knowledge from firm press releases/ desk by writer

The most important present Bitcoin miner by market cap and manufacturing stage is Core Scientific Inc (CORZ). The corporate simply grew to become publicly traded following a SPAC merger that simply closed this previous January. CORZ is reporting a self-mining hash rate capacity of seven.5 EH/s which is almost double the extent of the subsequent greatest participant with MARA at 3.6 EH/s. As talked about, hash fee capacities for all firms are anticipated to ramp up this yr. MARA is guiding for its hash fee to succeed in 23.3 EH/s by early 2023. Most firms are anticipated to develop capability considerably over the subsequent yr.

BTC metrics

supply: knowledge from firm press releases/ chart by writer

There are numerous shifting components and our warning right here is to not make any assumptions primarily based on a single metric like a miner’s hash fee, manufacturing stage, or BTC holdings. Cipher Mining Inc (CIFR), for instance, is within the strategy of constructing out 5 knowledge facilities this yr to in the end attain 19.5 EH/s in hash rate. Whereas the corporate expects an accelerated deployment of bought gear this yr, the corporate has not but begun mining operations that are mirrored within the firm’s discounted valuation.

One other vital metric for the group is every miner’s stability sheet Bitcoin holdings. Right here Marathon Digital has a lead with 8,595 BTC representing a market worth of almost $380 million. A part of that was acquired via open market purchases past mining. Some firms have made an effort to carry onto all BTC manufacturing whereas others understand the worth to lift money to help operations.

BTC holdings

supply: knowledge from firm press releases/ chart by writer

There’s some ambiguity right here for miners which have targeted on different cryptocurrencies like Ethereum (ETH-USD) together with HIVE Blockchain and Hut 8 Mining. These firms are rising their efforts in direction of Bitcoin whereas reporting an “equivalent hash rate” capability and efficient Bitcoin holdings primarily based on the worth of each cryptocurrencies. Because it pertains to Ethereum, there’s a query mark concerning the long-term viability of the mining operation contemplating the launch of “consensus layer” as an replace to the community that can in the end make proof-of-work mining as a enterprise mannequin out of date with a shift in direction of the choice proof of stake which is much less energy-intensive.

The understanding is that the total transition will take a number of years permitting HUT and HIVE amongst others to proceed using their intensive infrastructure for mining the Ether forex. Comments by management counsel they anticipate the operation to proceed as-is for the foreseeable future. The businesses might think about using the gear for different cryptocurrencies which might be GPU-based mined like Monero (XMR-USD) or DogeCoin (DOGE-USD) for instance. It is a matter that deserves a separate article however for our functions simply needless to say HIVE, HUT, in addition to Bit Mining Ltd. (BTCM) have some distinctive elements and are thus indirectly corresponding to the Bitcoin-only miners.

An enormous theme over the previous yr has been the emergence of a number of new Bitcoin mining firms that grew to become publicly traded like Core Scientific, Cipher Mining Inc (CIFR), TeraWulf Inc (WULF), Stronghold Digital Mining Inc (SDIG), Greenidge Era Holdings (GREE) and “Gryphon Mining” which remains to be within the strategy of finishing a merger with Sphere 3D (ANY). A number of different shares have up-listed into NASDAQ together with HUT, HIVE, Argo Blockchain plc (ARBK), Bitfarms Ltd (BITF), and Digihost Know-how Inc (DGHI). The hassle helps with company governance whereas enhancing the funding profile of the companies.

Different elements to contemplate embody miners that personal their underlying infrastructure by way of knowledge facilities and energy producing services as a type of vertical integration. There has additionally been an environmental push to make the most of renewable energy and clear power.

The Finest Bitcoin Mining Inventory to Purchase Now

After we look throughout the universe of crypto miners, it is clear {that a} rising tide of upper Bitcoin costs can “elevate all boats”. We’re bullish on Bitcoin and anticipate the smaller gamers to rally in a state of affairs the place Bitcoin breaks out. On this regard, a number of the extra speculative names might very effectively find yourself outperforming in proportion phrases over any specific time-frame. That stated, in making a name on “the most effective” Bitcoin mining inventory we’re going for some stability recognizing that the house is already high-risk sufficient and specializing in high quality. We need to be invested in a number one miner that may navigate totally different market situations going ahead.

In our view, the secret is the dimensions and the businesses with the biggest operations have a number of benefits between the flexibility to barter extra favorable phrases on future bulk purchases of mining gear in addition to seize larger ranges of transaction charges throughout the community and mining swimming pools. Individually, there’s additionally some visibility to include new income streams down the road like decentralized finance Bitcoin lending, contemplating what are more and more massive stability sheet holdings that present monetary flexibility.

Our high choose for 2022 is Marathon Digital. In making our name, it is price drawing a distinction with Core Scientific, which we additionally like, recognizing a few of its strengths. That stated, we make the case that MARA is undervalued between the 2 and has extra upside. In comparison with an enterprise worth of $3.8 billion for CORZ, MARA is priced at a close to 40% low cost with an enterprise worth of $2.4 billion.

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We already talked about that CORZ is the biggest miner by way of the present self-mining hash rash fee of seven.5 EH/s in January in comparison with 3.6 EH/s for MARA. Nonetheless, the important thing to acknowledge is that MARA is on monitor to overhaul CORZ into the second half of this yr with a roadmap to succeed in 13.3 EH/s by “mid-2022” and 23.3 EH/s by early 2023 whereas CORZ has solely introduced a goal of 15 EH/s by year-end.


supply: Marathon Digital

For simplicity functions, assuming each MARA and CORZ are at 15 EH/s by the top of this yr, that stage of hash fee in opposition to an estimated community issue of 250 EH/s and market value of BTC at $44k implies about $867 million in annual self-mining income for each firms. With 23.3 EH/s hash fee totally deployed by 2023, MARA would strategy annualized income run fee above $1.3 billion.

By this measure, it is clear that MARA is buying and selling at a decrease ahead gross sales a number of. When it comes to valuation, MARA has a bonus right here as a result of it maintains a net-cash stability sheet place whereas CORZ final reported $567 million in debt (S-1 filing, page 182) which provides to its enterprise worth. From there, we conclude that MARA is comparatively extra engaging than CORZ and different main mining shares at its present stage via our estimated EV to potential income stage a number of.

BTC miners

supply: estimates by writer

From the desk above, we spotlight that a number of the smaller gamers look attention-grabbing with an excellent deeper low cost, however we sense that MARA deserves a premium given its dimension in comparison with a number of the micro caps. However, names like BTBT, SDIG, SLNH, DGHI, and DMGGF deserve a more in-depth look however are merely not our high choose. The desk additionally omits some names which might be much less comparable together with the Ethereum miners.

To be clear, it is by no means an apples-to-apples comparability. Core Scientific and Riot Blockchain for instance run a technique past Bitcoin Mining that additionally consists of vertically built-in infrastructure with a separate blockchain internet hosting operation as a income supply from its company-owned knowledge facilities. CORZ previously guided for 2022 whole revenues to succeed in $1.1 billion and $572 billion in adjusted EBITDA with a reference value of BTC at $30k. It is honest to say that this aspect of the operation provides incremental worth to the enterprise and justifies a number of the present valuation premium.

CORZ metrics

supply: Core Scientific

Marathon takes a special strategy by selecting to focus all its efforts on shopping for mining rigs and increasing capability. The corporate makes this distinction in distinction to different miners, together with Core Scientific and others like RIOT, HUT, HIVE, and ARBK, that are constructing capital-intensive infrastructure. MARA as an alternative chooses to outsource these providers or via business partnerships. The corporate believes its methodology can generate a better return on invested capital with the additional benefit of with the ability to increase extra shortly and attain larger capability over the long term.

MARA metrics

supply: Marathon Digital firm IR

It is a case the place MARA is “unhedged” to larger Bitcoin costs whereas different gamers are trying to regulate all phases of manufacturing which provides a layer of complexity to the enterprise. Our conclusion right here is that MARA can be higher positioned to generate larger returns in a bullish state of affairs the place BTC climbs again to +$50k and past.

MARA Inventory Worth Forecast

It is price noting that Marathon final reported its Q3 earnings again in November the place it was in a position to put up a constructive adjusted EPS of $0.85 per share, excluding stock-based compensation. Income at $51.7 million elevated 76% from the prior quarter in Q2 highlighting its progress momentum.

In response to consensus estimates, MARA is on monitor to succeed in $151 million in income for 2021 together with the yet-to-be-reported This autumn outcomes. The development ramps as much as an estimated $696 million in income for 2022 which represents a 362% y/y improve. The important thing takeaway is that the corporate is predicted to be worthwhile this yr with a 2022 EPS forecast at $3.59 which means a present ahead P/E of 8x. That is achieved via a projected BTC manufacturing price of $6,235 per BTC which incorporates electrical energy and internet hosting.

The market forecast for 2023 income at $1.3 billion can be pushed by the introduced capability enlargement. Earnings ought to profit from larger margins achieved via scale. EPS forecast of $4.30 represents adjusted web revenue of round $430 million contemplating MARA’s present 100 million excellent share depend, in any other case, a formidable earnings outlook that may climb into larger Bitcoin costs.

MARA metrics

Searching for Alpha

With the subsequent quarterly earnings report prone to be launched in March, monitoring factors embody the developments in working margins and money circulate. Administration steering by way of monetary targets may also be key to observe.

Any bullish case for MARA from right here goes to want Bitcoin to maintain a development of upper pricing over the long term. We have beforehand lined a bullish case for BTC highlighting secular tailwinds in direction of “digital property” that may help larger Bitcoin costs. We imagine these elements are nonetheless in place regardless of the current volatility.

Wanting on the value chart for MARA, the current motion exhibits that the inventory has rallied from a low of round $20 per share a number of instances during the last yr coinciding with the instances BTC examined a variety between $35k to $30k as an vital stage of technical help. We make the case that MARA’s outlook now’s stronger than ever contemplating the enlargement in direction of 23.3 EH/s hash fee was solely introduced again in December which improves its progress potential.

MARA chart

Searching for Alpha

We fee MARA as a purchase with a value goal for the inventory at $50.00 per share which assumes a flat BTC pricing on the present stage, implying a ahead P/E of 14x on the inventory in opposition to the present consensus 2022 EPS of $3.59. In our view, the corporate is essentially undervalued as an business chief with total strong fundamentals into accelerating earnings progress.

A continued rally in BTC from right here ought to add momentum to the sector and we see MARA main larger. A state of affairs the place BTC reclaims its all-time excessive above $65k might enable MARA to retest its peak round $85 from 2021 representing almost 200% upside. The uneven reward to danger ratio makes for a compelling shopping for alternative in what stays a sizzling sector.

BTC chart



There are many dangers to contemplate. The truth is that cryptocurrencies stay one of many extra speculative segments of the market and the mining firms are even larger danger with extra volatility. One other leg decrease within the value of Bitcoin beneath the $30k stage, which we view as a vital stage of help, can open the door for a deeper selloff in shares of MARA and pressure a reassessment of the long-term earnings outlook.

For MARA, there’s some execution danger with the likelihood that it fails to efficiently deploy its mining operation on schedule or faces some setback associated to logistics and infrastructure. Weaker than anticipated outcomes over the subsequent few quarters can additional stress the inventory.

There have additionally been considerations raised concerning the environmental impacts of Bitcoin mining with some international locations like China shifting to ban the exercise outright. Whereas MARA with its U.S. operations avoids publicity to a number of the larger danger worldwide areas, efforts so as to add regulation can restrict progress alternatives and stress the market pricing of Bitcoin.

Backside Line

Bitcoin mining shares characterize probably the most thrilling sectors of the market. For lots of the rising leaders, 2022 is about to be a transformative yr with surging progress that generates actual money circulate and important earnings. Marathon Digital Holdings is our high choose, however we’re bullish on a number of names. Recognizing the uncertainties and high-risk nature of the group, we suggest buyers solely think about a small place throughout the context of a broader and extra diversified portfolio.

Editor’s Word: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.

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