• Bitcoin miners like MARA are leveraging convertible bonds to increase BTC holdings, injecting stock volatility and achieving high BTC Yields.
• MARA’s BTC holdings and operations make it undervalued, with 53% of its market cap in BTC.
• The convertible bonds strategy has driven a 47.6% YTD BTC Yield, yet the market hasn’t fully recognized this value.
• MARA’s approach and asset value make it a strong buy, offering significant upside potential at current levels.

There’s a lot of really interesting things going on in Bitcoin (BTC-USD). BTC recently crossed $100,000 per coin and $2 trillion market cap, hitting a new milestone that has been in the making for almost 16 years.

The corporate adoption of Bitcoin as a strategic treasury asset is also beginning to take off. There is even the suggestion that the US might put BTC on its balance sheet. In this article, I’ll focus on a very interesting development in corporate BTC acquisitions— Bitcoin miners that are raising capital to buy BTC. MARA (NASDAQ:MARA), the world’s largest publicly traded miner by hashrate, is really leading the way in this front.

Raise Capital To Buy Bitcoin – Strategy Overview

I’ve covered the general strategy of raising money to buy BTC in several different articles. It is as follows:

1. Buy BTC with cash you have.

2. Issue shares to buy BTC.

3. Borrow money to buy BTC.

4. All of this increases the equity’s exposure to BTC, a highly volatile asset. This makes the stock super volatile. If it hasn’t happened already, get option markets on the equity.

5. Once a high implied volatility is reflected by the option markets, issue convertible bonds at very low-interest rates to buy BTC.

The 5th step is essentially the company selling its own volatility to rapidly grow BTC per share, since a convertible bond has a call option embedded within it. Everything leading up to step 5 is about increasing BTC exposure so that BTC’s volatility can be injected and infused into the stock. If all goes well, the stock will have an >100 IV with a vibrant options market. This allows convertible bonds to be issued at near 0% interest rates.

Convertible bonds offer many benefits for growing BTC per share:

• Selling volatility, so you are monetizing something other than your equity and debt

• Issuing equity at above the market price, based on the conversion premium

• Minimal interest expenses to service the debt, and in some cases zero expenses

• Tap into a gigantic market of convertible bonds traders. Their trading activities (delta hedging, gamma scalping) also increase price discovery and volumes in your stock

• You can immediately take the proceeds to buy BTC, announce a BTC Yield that same day, and then raise more money at a much higher frequency than for anything else

• The acquisitions of BTC have the effect of cornering the supply and driving up the price of BTC, which makes your BTC more valuable

Why Bitcoin Miners Can Do This Really Well

If you look back at the steps above, you’ll notice injecting volatility into the stock is vital to successfully executing the strategy. Most stocks take a while to get there because they have an operating business which is not volatile. They need a lot of BTC to really inject volatility.

Bitcoin miners are already very volatile because their entire business model centers around BTC. A mining operation is much like a call option on BTC, where the strike price is the cost to mine 1 BTC. Many miners also hold on to the BTC they mine, which gives the balance sheet some higher-than-average BTC exposure. Most miners have over 100 IVs.

Therefore, miners can issue convertibles at near 0% rates, and MARA has done this a few times this year. Each time, the company spent most of the money on BTC. The company has 40,435 BTC as of 10 December and a YTD BTC Yield of 47.6%. This means that for every 1 BTC you held via MARA shares on 1 January 2024, you now held 1.476 BTC from those same shares.

MARA Looks Pretty Cheap

Because BTC is up 118% YTD, a BTC Yield of 47.6% would mean that the value contained within a share should have increased around 165% (I am simply adding the BTC Yield and the BTC performance, but this would be an overestimate if MARA bought the BTC throughout the year at higher price points, which it did). The fact that the stock hasn’t moved much this year suggests that an extreme repricing could be in store.

Here’s another way to see it. Anyone can clearly see that this is an operating business plus a large stash of BTC. These two components are required to get a fair value of the company. The 40,435 BTC at $96,000 per coin is $3.88 billion. MARA’s market cap right now is $7.34 billion at a $22.80 share price. This means that 53% of the company’s value is BTC. For every dollar of MARA stock you buy, you are getting 53 cents of BTC. The operating business makes up the remaining 47 cents of that dollar, and it has a value of $3.46 billion.

Let’s do some quick math.

MARA has an average fleet efficiency of 22.7 J/Th as of Q3. It also has 50 Eh/s as of 10 December. Miners will install the newest models, so I expect the average fleet efficiency to be slightly more efficient by 10 December (the Q3 presentation reports 40.3 Eh/s). Note that a higher fleet efficiency means a lower J/Th number.

On Bitmain’s website, the S19J XP miners are 21.5 J/Th efficiency with a price per terahash of $23. Because MARA’s average fleet efficiency will be roughly 21.5 J/Th, we can assume that it is all S19j XP machines.

Given these numbers, the ASICs alone required to generate 50 Eh/S is worth $1.15 billion (23 $/T x 50,000,000 T = $1.15 billion; 1 exahash is 1 million terahashes).

So the operating business which is worth $3.46 billion (after we removed the BTC holdings from the MARA market cap) also contains $1.15 billion worth of machines. This isn’t even counting the fact that all the machines are currently installed and running with all the proper servicing protocols in place. It also doesn’t count the actual sites, power infrastructure, and human capital that must accompany a mining operation for the machines to generate hashrate and mine BTC. MARA has 1500 MW of available capacity and owns much of these assets outright.

Is all of that worth only $2.3 billion? Let us say that it is worth $2.3 billion, despite the fact that some data center REITs with 3000 MW in total across their sites (and minimal ownership of computing machines) can trade for tens of billions of dollars.

Please remember that we still haven’t even counted the future income generated by turning these machines on. 50 Eh/s is 6.5% of the Bitcoin network’s total hashrate of 765 Eh/s. Bitcoin miners collectively earn a 3.125 BTC block subsidy per block per 10 minutes (we are not even counting network transaction fees). This is 4320 blocks, 13,500 BTC per month. A 6.5% share of that is 877.5 BTC, or $84.2 million at $96,000 per coin. So $84.2 million per month is the lower bound revenue estimate.

We also must remember that the mining operation isn’t even the only operating business segment. MARA sells special firmware and 2-phase immersion cooling (2PIC) technology.

2PIC has tens of millions of dollars in orders in the pipeline. 2PIC works for Bitcoin mining and for AI GPUs. This is a pure pick and shovels play on AI data centers. MARAFW, which is only for mining, also has its own paying customers.

An investor is probably getting a lot of free things at the current share price and market cap.

There’s a third way to see this opportunity. And it is the simplest.

Amongst all the miners, MARA’s BTC holdings occupy the highest percentage of its market cap.

At this point, MARA’s premium to its BTC holdings is even smaller than MicroStrategy’s premium to its own BTC holdings. And unlike MicroStrategy, MARA’s operating business has a positive income based on GAAP accounting. Here is the list of companies with Bitcoin treasuries, sorted by their BTC as a percentage of their market:

When you look at it this way, MARA is literally the cheapest miner. And it is fascinating that it has the most BTC and highest BTC Yield by a long shot.

Risks

The main risk with MARA is that the convertible bonds strategy doesn’t work out. This can happen if there’s a prolonged pullback in MARA’s price. The bondholders will not opt to convert their bonds to shares, and MARA may be forced to sell off assets to pay the principal. It is also during such a time that refinancing the bonds could prove difficult, leaving asset sales to be the only course of action. This risk could materialize if BTC crashes. This company is of course a bet on BTC. Anyone who cannot accept that risk need not consider MARA for investment.

The other key risk is that MARA still seems to be very committed to increasing hashrate. I dislike this. Mining is largely a losing game in all commodities. Gold miners don’t outperform gold and silver miners don’t outperform silver. Bitcoin is the most unforgiving and zero-sum commodity there is, thanks to its absolute scarcity and its global accessibility. Bitcoin miners have no moat in mining. Their moat is in their access to power infrastructure, which can be repurposed to serve AI use cases. Recently, we are seeing that their other moat is the volatility of their equity, which can be efficiently monetized via convertible bonds.

In general, my view is that MARA can and should divest their miners over time and buy BTC with the proceeds to further increase BTC per share. Dumping the depreciating ASICs and focusing on acquiring BTC would be better for the long term. It is unlikely that any ASIC will generate more BTC over time via mining than by being sold for some BTC on the spot.

Conclusion

The company is executing the convertible bonds strategy with great results. Yet, the market has been seemingly unresponsive to these enormous BTC Yield numbers that MARA has been putting up. On a multiple to BTC holdings basis, MARA is the cheapest Bitcoin miner out there. A simple sum of parts analysis shows that there is a lot of value here.

MARA is a Strong Buy at these levels.

Editor’s Note: This article was submitted as part of Seeking Alpha’s Top 2025 Long/Short Idea investment competition, which runs through December 21. With cash prizes, this competition — open to all analysts — is one you don’t want to miss. If you are interested in becoming an analyst and taking part in the competition, click here to find out more and submit your article today!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BTC-USD, FBTC, MSTR either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

May initiate a Long position in MARA in 72 hours.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: Currently The Cheapest Bitcoin Miner, Huge Upside Ahead appeared first on Up2info.com.

• MARA Holdings leads in bitcoin mining and energy-efficient computing through advanced technologies and strategic acquisitions, enhancing its computation capacity and cost-saving measures.
• The company’s expansions in Ohio and proprietary energy innovations, like two-phase immersion cooling, significantly reduce costs and improve efficiency.
• MARA’s hybrid strategy of retaining mined Bitcoin and leveraging debt for more Bitcoin positions it well for potential price appreciation.
• Despite strong growth and innovative strategies, MARA faces risks from Bitcoin price volatility and reliance on external energy markets.

MARA Holdings (NASDAQ:MARA) is currently at the frontier of the crypto boom. The company is capitalizing on advanced technologies and strategic acquisitions to cement its position as a leader in bitcoin mining and energy-efficient computing. Mara is successfully navigating the volatile and increasingly competitive crypto industry through large expansions in mining capacity and cost-saving measures.

Mining Operations

MARA’s recent expansion really shows its commitment to growing its scale and efficiencies. The company has increased its interconnect-approved capacity by 372 MW for three data centers in Ohio alone in Q3 of 2024. This puts MARA in a great position to expand its mining operations for the foreseeable future. The company also acquired its Hopedale and Hannibal facilities at just $270,000 per MW. This figure is far below the industry average of around $900,000-$1.5 million per MW. MARA is also developing a greenfield facility in Ohio, which should add another 150 MW of capacity.

These expansions are part of MARA’s strategy of growing its operations. They also allow Mara to reduce its dependence on third-party providers. MARA will be able to significantly minimize operation risks and improve cost by owning and operating 65% of its 1.5 HW of compute capacity. This vertical integration aligns with its goal to lead the digital asset sector while at the same time maintaining flexibility in energy sourcing.

Energy Innovations

Energy efficiency is very important in the energy-intensive Bitcoin mining industry. In fact, the overall energy consumption of Bitcoin mining is now comparable to the energy consumption of some smaller countries like Poland. MARA is successfully taking steps to address this challenge through technological advancements and a growing list of partnerships. The company has developed its own propriety Two-Phase Immersion Cooling technology, which greatly improves energy efficiency by increasing power density compared to traditional methods by up to four times. MARA has also successfully reduced cooling costs by up to 60%.

MARA has also established a partnership with NGON, which converts flared natural gas into electricity. This partnership has allowed the company to reduce electricity costs to nearly $0.01 per kWh. This figure is around four times less than the market average price, showing MARA’s ability to acquire energy generation at incredibly cheap costs. Because of these improvements, MARA is one of the most cost-competitive bitcoin miners in the industry by increasing efficiencies.

Bitcoin’s Rise and MARA’s Strong Strategic Positioning

Bitcoin’s change from a niche asset to a globally recognized digital store of value has provided companies like MARA the opportunity to thrive. MARA has seized upon Bitcoin’s growing popularity by expanding operations and growing its holdings. Bitcoin has unique attributes as the first major digital asset. For instance, it has an artificially capped supply and a decentralized nature. This has made it an increasingly valuable asset for investors seeking to diversify.

While companies like MicroStrategy (MSTR) have taken a more direct investment approach by accumulating Bitcoin as a corporate treasury asset, MARA is also focused on Bitcoin mining. MARA not only accumulates Bitcoin but also generates revenue from its production of Bitcoin by taking advantage of its increasingly large and energy-efficient mining operation. On top of this, MARA is also in a great position to copy MicroStrategy’s innovative playbook of accumulating debt to buy even more bitcoin.

MARA incorporates a hybrid strategy in which it retains much of the bitcoin it mines. This allows MARA to benefit from potential price appreciation while it focuses on its mining operations to ensure steady revenue generation. This also allows MARA to employ MicroStrategy’s “infinite money glitch” strategy of borrowing money at cheap rates in order to buy more bitcoin, hoping for bitcoin to appreciate, and making money off the difference.

Financials

MARA reported good results in Q3. The company’s revenues increased to $131.6 million during the quarter, which represents a jump from $97.8 million YOY. MARA was able to maintain its production levels and mined 2,070 Bitcoins during the quarter, despite Bitcoin’s volatility during the quarter.

The company also holds a great deal of Bitcoin in reserve, with 26,747 Bitcoin valued at nearly $3 billion at current prices. This figure will undoubtedly increase as MARA appears to be following MicroStrategy’s lead in buying Bitcoin. The company is utilizing a long-term holding strategy as a leveraged play on Bitcoin’s long-term appreciation. However, investors should be wary that MARA’s strategy of shareholder dilution to fund its purchases is also a double-edged sword.

Risks

Despite its strengths, MARA is still a risky investment. The company is involved in an incredibly volatile industry where Bitcoin price fluctuations can significantly impact profitability in the positive or negative. Donald Trump’s presidential election victory has only increased volatility, given how much speculation has ramped up as a result. This risk is only increased by MARA’s strategy of holding a large number of Bitcoin. This Bitcoin holding is often used as leverage to buy even more Bitcoin.

Another major risk facing MARA is its dependence on stranded gas and external energy markets for cheap energy. If energy supply constraints or price increases occur, this can also have a negative impact on profitability, not to mention the additional risk of Bitcoin’s price itself falling. These cheap energy sources are also relatively hard to find. Furthermore, while MARA’s plans to move into AI are promising, it also leaves a lot of room for execution risks due to its untested nature.

Conclusion

MARA is taking a relatively new approach that has allowed it to do well in the digital asset space. While MARA is certainly not risk-averse, it represents a solid investment at its current valuation of ~$8 billion. While the company does have a relatively high forward PE of 40, MARA could see its market capitalization explode if Bitcoin continues to appreciate at its current rate.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSTR either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: A Pioneering Force In Crypto appeared first on Up2info.com.

• MARA Holdings’ 1.5 GW capacity, with 65% owned, ensures unmatched cost control and scalability.
• Ohio data centers acquired at $500/operating KW, significantly below peers’ $900-$1500 range, boosting ROI.
• 102% annual increase expected by 2024, reaching 50 EH/s, solidifying MARA’s digital asset dominance.
• Secures electricity at $0.01/kWh, reducing costs and supporting a 34% return on capital employed (ROCE).
• $2.5B Bitcoin holding (~28% of market cap) positions MARA for gains but exposes it to volatility.

Investment Thesis

MARA Holdings, Inc. (NASDAQ:MARA) is poised for exponential growth, underpinned by its aggressive expansion of compute capacity and strategic acquisitions at industry-leading low multiples. With 1.5 GW of nameplate capacity, 65% of which is owned and operated, MARA achieves unmatched cost control and operational efficiency.

The company’s acquisition of Ohio data centers at ~$500/Operating KW, far below peers’ ~$900-$1500, positions it for superior ROI. A 102% annual increase in compute power by 2024 fortifies its digital asset dominance. Coupled with energy partnerships yielding $0.01/kWh electricity and a 34% ROCE, MARA exemplifies scalability, cost leadership, and capital efficiency in a surging compute market.

Expansion of Compute Capacity and Low Acquisition Multiples

MARA stock holds valuation support from the company’s expansion of compute capacity. Here, the company added 372 megawatts (MW) of interconnect-approved capacity across three sites in Ohio in Q3 2024. Additionally, acquiring two operational data centers in Hannibal and Hopedale brings in 222 MW, whereas 122 MW is already operational. These centers will generate 100 MW of remaining approved capacity in 2025. Further, MARA is assembling a new 150 MW facility in Findlay, Ohio (30 MW already operational). These ongoing developments may be online by 2025 and may increase the company’s compute capacity and get optimized over time. For 2024, there will be a 102% annual increase in compute capacity to 50 EH per second.

Moreover, MARA’s strategy is moving beyond expanding capacity with geographic and operational diversification. The data centers are now across multiple jurisdictions so no single independent system operator (ISO) has control >50% of MARA’s owned and operated capacity. This strategy minimizes risks from regulatory shifts, system failures, and operational issues within a single ISO. It pushes MARA to leverage multiple energy markets and maximize the potential for business returns. MARA’s return on capital employed (ROCE) is now at 34% just behind the tech sector’s 43%. Meanwhile, the closest peer yielded 23%.

Further, MARA acquired the two data centers in Ohio at a cost of ~$270K per MW of interconnect-approved capacity. This acquisition cost is lower than its publicly traded peers. MARA’s turnkey purchase multiple is at ~$500/Operating KW whereas the closest peers are in ~$900-$1500/Operating KW range. The relatively low cost of acquisition indicates MARA is securing valuable assets at attractive prices. With that, MARA may continue to yield high investment once the compute data centers become online and fully operational.

By acquiring assets at a low multiple, MARA can have massive operational savings. At the Hopedale data center, MARA projects that ownership may reduce operating costs by up to ~50%. This heavy cut in OpEx will boost the company’s bottom line and operational edge obviously. In a capital-intensive industry like data centers, OpEx can burn a major portion of revenue. By reducing its operational footprint and boosting control over its assets, MARA may derive economies of scale to optimize its bottom line.

Additionally, MARA persists in its digital asset compute market lead due to its high scale. In 2024, the company secured ~1 gigawatt (GW) of nameplate capacity through acquisitions and greenfield developments, bringing its consolidated nameplate capacity to ~1.5 GW. 65% of this capacity may be owned and operated by MARA. As a result, this direct control scales up MARA’s lead in the digital asset compute and data center sector.

How? By owning and operating a majority of its assets, MARA gains a cost edge against the market. Relying on leasing and third-party arrangements brings in additional costs and less operational control. The ownership of such a large portion of its capacity provides MARA with a higher potency of long-term improvement in its cost structure. Market-wise, the demand for data storage and compute capacity continues to grow, now owning and operating data centers may allow MARA to have a larger market opportunity. Overall, the company is now best-capitalized and can edge by pursuing M&A opportunities to accelerate its operational growth and compute expansion.

Energy Dependency, Bitcoin Price Volatility, and HODL Strategy

As observed, MARA Holdings targets to reduce OpEx (mostly energy costs), but it requires sharp scaling of energy generation and managing power prices against the macro challenges. While MARA hit a high reduction in energy costs (through its partnership with NGON) the ability to continue to derive electricity at ~$0.01 per kilowatt-hour (kWh) against the market price of $0.04 per kWh makes the long-term scalability of this cost-saving strategy uncertain.

Although this reduction can be sustained with the use of stranded gas, the availability of this energy resource on a large scale (for MARA’s needs) may be limited based on the outlook for demand from Asia giants. On the earnings call, MARA mentioned over 1 million gigawatt-hours of available stranded gas. However, this is an estimate based on the entire market availability, not what can be reliably captured and utilized by MARA alone.

Although MARA is focusing on securing more control over its energy generation by investing in its own sites, its energy strategy is still subject to partnerships and the state of the market. MARA is currently operating in competitive energy regions like PJM that do not offer exclusive control over pricing and supply. If the cost of energy and access to cheap stranded gas increases or at least becomes more volatile, MARA can be hit by high operational/bottom-line issues and related drops in valuations.

Moreover, MARA’s move to expand its energy generation and cut costs by increasingly relying on its owned and operated data centers (scaling energy infrastructure with new technologies like micro data centers) is capital intensive. MARA’s expansion efforts may continue to require massive financial outlay to build/acquire assets. Now, given the size of MARA’s operations and its target to scale up capacity with large sites (100-megawatt and larger), any delays or failures in scaling energy resources could hurt its growth potential and street confidence (analysts’ estimates).

Further, MARA’s balance sheet holds ~$2.5 billion worth of Bitcoin (BTC-USD) with an average purchase cost of under $50K per Bitcoin. This holding is a major fraction of its market value (28% at the time of writing), and the price fluctuations of Bitcoin directly hit MARA’s stock price. MARA has a solid return on its Bitcoin investments due to the recent surge in Bitcoin prices, but the same volatility could also lead to massive losses if prices drop sharply below $50K (under Bitcoin Market Cycle).

MARA’s strategy on Bitcoin (Full “HODLˮ approach) introduces huge risk by getting highly exposed to fluctuations in cryptocurrency prices. While the company preferred the flexibility in managing its Bitcoin through yield generation, collateralized loans, or asset purchases, all-in-all these solutions still carry risk. Lastly, the value of collateralized Bitcoin may diminish with a drop in Bitcoin prices reducing MARA’s capability to derive cash from this source.

Takeaway

MARA’s aggressive expansion of compute capacity, driven by industry-leading low acquisition multiples and cost-efficient operations, positions it as a dominant player in the digital asset and data center space. With 1.5 GW of capacity and unparalleled cost control, MARA is set for robust growth, offering superior ROI and scalability in a rapidly expanding market.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Why MARA Holdings Could Be Bitcoin’s Biggest Beneficiary appeared first on Up2info.com.

• I support the CEO’s decision to avoid independent AI/HPC hosting, reducing risks tied to low margins and rapid tech obsolescence once hyperscalers fully deploy their infrastructure in 2026.
• The company’s energy strategy, converting flared gas to electricity, significantly reduces power costs to 1 cent per kWh, aiming for over 1 GW capacity of low-cost energy.
• Recent acquisitions and facility upgrades are expected to increase computing power by 70% by late 2025, with potential operational cost reductions using its 2PIC tanks.
• Falling Bitcoin prices, ongoing share issuance, and negative sentiment toward non-mining expansions are some big risks to consider.
• Following the 30% decline in the share price, MARA’s low valuation ratios and strong growth prospects make this stock a speculative strong buy.

MARA Holdings, Inc. (NASDAQ:MARA) has seen its share price decline by over 30% following the release of Q3 earnings.

With the company planning to release more details on potential partnerships with hyperscalers in the upcoming quarters, I considered reviewing

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MARA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: If You Can’t Beat Hyperscalers, Partner With Them appeared first on Up2info.com.

• Marathon Digital’s stock has been highly volatile but appears undervalued as it accumulates more Bitcoin and scales mining capacity with low compute costs.
• Marathon’s third-quarter report shows significant progress in mining capacity and lower computing costs, enhancing its competitive position and margins.
• Despite shareholder dilution to fund Bitcoin purchases, Marathon maintains a clean balance sheet with manageable long-term liabilities.
• Marathon’s valuation is attractive relative to Bitcoin and its historical metrics, making it a compelling buy for patient investors seeking exposure to Bitcoin mining.

Bitcoin miners have been through an unbelievably wild ride since the presidential election in the US, with many exploding higher only to see those gains quickly reversed. That’s been the case with Marathon Holdings (NASDAQ:MARA), moving from $16

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in MARA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post Marathon Digital: Risk Is To The Upside As Capacity Ramps appeared first on Up2info.com.

• Despite previous skepticism, MARA Holdings’ stock has held up well post-halving, prompting a reevaluation of its potential pathways to profitability.
• Marathon’s Q3 2024 earnings preview shows growth in Bitcoin mining operations, but the company remains unprofitable on a gross income level.
• Key to profitability: reducing costs through vertical integration and exploring new revenue sources, including a potential pivot to AI data centers.
• Given the strides in cost management and AI opportunities, I am shifting to a speculative “Buy” rating for Marathon Digital.

I’ve written previous articles on MARA Holdings (NASDAQ:MARA) where I made the argument that direct Bitcoin ownership may be a better investment. This has panned well 2 out of the 3 times I have suggested it, making it a win in my book.

However the fact of the matter is despite the drop in revenue due to the halving event, we have not seen a subsequent massive drop in MARA stock price. The company’s stock has held up way better than I expected causing me to have a second look. I believe the company has certain interesting pathways it can go from here.

Q3 2024 Earnings Preview

In the latest update on Marathon’s Bitcoin mining operations, the company has shown growth in its operations. Its energized hash rate, a number used to calculate a miner’s efficiency, has reached 36.9 EH/s. This was a 5% increase from the month of August and substantial growth from the 31.5 EH/s reported last Q2 2024. The company mined 705 Bitcoins in September, 673 Bitcoins in August, and 692 Bitcoin in July. This makes the rough total for Q3 2024 about 2070 Bitcoins mined. This was slightly higher than the 2058 Bitcoins mined in Q2 2024.

The summary of these monthly results reflects what mining activity would look like post the April 2024 halving event. In other words, this gives us investors the idea that Marathon should be minting roughly about 2000 Bitcoins growing at a steady rate as it continuous to expand its production capabilities. According to management, the company is on track to hit its target of 50 EH/s by the end of 2024.

However, what is most concerning to me as an investor, is the fact that Marathon is not profitable on a Gross Income level for its Bitcoin operations. This was something I discussed in a lot of detail in my previous articles on the company. As a growth investor, I’ve become rather forgiving of technology companies reporting and sustaining negative Net Income for long periods of time. This is of course with the understanding that the company will eventually hit a certain scale, allowing profitability.

This scaling could be challenging though for Marathon Digital which loses money for every Bitcoin mined. For this article, though, I would like to play “Devil’s Advocate” and highlight the path to profitability for the company. These are the things in particular I would take note of in the company’s upcoming Q3 2024 earnings.

Marathon’s Path to Profitability

There are really only two ways for Marathon to reach profitability on a Gross Profit level, and that is either increase Revenue or/and decrease its costs. On the Revenue side, simply continuing to increase the company’s hash rate i.e. mining more Bitcoins would not lead it to profitability. This is because on the Gross Profit level, increasing Marathon’s hash rate without decreasing the cost per coin mined simply means that Marathon continues to lose every Bitcoin mined.

In Q2 2024, the company reported a total cost of revenues of $181.7 million. Given that the company mined 2058 Bitcoins in Q2 2024, this implies a total cost per coin of $88,287 ($181.7 million divided by 2058 Bitcoin mined) in Q2 2024. This is a metric I would calculate when looking at Marathon’s upcoming Q3 2024 earnings. This high number is quite concerning as Bitcoin has not breached the $80,000 mark thus far this year.

In Q2 2024, the company reported total revenues of $145.1 million. However, of the total amount of $78.6 million was mark-to-market revenue from the increase in the average price of bitcoin. Removing this amount and the small amount of revenue generated from providing hosting services gives us about $57.8 million in Revenue from direct mining. Dividing this amount by 2058 Bitcoins mined gives us a price of $28,104. Considering the massive Bitcoin rally since then, I would not be surprised to see Marathon report improved Revenues for the quarter. Note though that the current price of Bitcoin is roughly $68,000 which is still below the implied cost to mine, thus not ensuring the company’s profitability.

Cost-Cutting Measures and Other Revenue Sources

Marathon’s management seems to be aware of the issue and has begun vertically integrating its operations. Initially, the company pursued an asset-light strategy by relying on third parties in order to expand rapidly. Once acquired, these owned sites can be operated more efficiently using the company’s vertical stack. For instance, Marathon is in the process of converting its Granbury data center from air-cooled to MARA’s immersion containers. Being majority vertically should reduce the company’s cost of Bitcoin mined. This is something we should look out for in the coming quarters.

In terms of revenue, Marathon has been exploring alternative sources of Revenue to boost its profitability. Many of the proposals though are merely ancillary, and I don’t expect these to move the needle much. These proposals range from using the heat generated by Bitcoin mining to using the excess methane from landfills to power operations. Some of these projects are already ongoing. For example, the company is already re-selling recycled heat to 11,000 residents in a small town in Finland.

These projects, though while good PR due to its environmental benefit, are simply too small to significantly impact Marathon’s top-line revenues. For example, the data center in Finland that sells recycled heat is only 2MW, while the landfill methane gas Bitcoin data center is only 280kW. This is but a tiny size of the company’s 760MW of mining capacity. The company has also started mining the cryptocurrency Kaspa which has a higher profit margin than Bitcoin. As well as leveraging its balance sheet to borrow $300 million in order to buy more Bitcoin.

However, by far the most interesting avenue that Marathon could pursue is a pivot to AI. The demand for data centers is set to grow rapidly in the near future, driven primarily by AI computing. Estimates from the Federal Energy Regulatory Commission indicate that data centers will need up to 35 GW of power as early as 2030, a significant portion of all power generated in the US. According to a Reuters article, due to a lack of supply of reliable electricity, technology companies have begun pursuing energy assets held by bitcoin miners. It wouldn’t be a surprise to me to see more collaboration or deals between Bitcoin miners and technology companies for data centers.

Furthermore, Marathon has made specific moves towards this pivot. For instance, the company has recently appointed AI experts Janet George and Barbara Humpton to its board. The company’s technology and know-how in the field of power efficiency could provide a competitive advantage. Specifically, the company’s MARA 2PIC700 Two-Phase Immersion Cooling System can be used for AI data centers as well. Simply put, the technology allows up to 2-4x more power within the same space by rapidly cooling the hardware used in data centers. A lot of power is used to cool data systems, and “running too hot” creates inefficiencies. According to the company’s press release about this system;

Compared to current alternatives, MARA 2PIC700 enables two to four times the power density and can reduce the space requirements for a data center by up to 75%. It can operate in temperatures ranging from minus 20 degrees Celsius to 50 degrees Celsius and is built for remote management. As a result, the system can enable data centers to be built and operated in remote or harsh climates that were previously inaccessible. For Bitcoin mining specifically, MARA 2PIC700 enables ASIC miners to be overclocked by 60-100% and can enable up to a 60% reduction in cooling costs, even under the most extreme conditions.

It will be interesting to see in the coming quarters whether or not Marathon could make any inroads in the AI/High-performance computing industry. I would keep an eye out for any deals made by the company and other Bitcoin miners in this space. I believe, if successful, this could prove to be a real game-changer for the company.

Conclusion

In previous articles, I believed that investors were better off owning Bitcoin or a Bitcoin ETF over Bitcoin miners like Marathon Digital. This was a theme that played out pretty well I think as mentioned above. However, I am changing my tune a bit as management seems to be making strides towards decreasing costs and increasing revenues. In particular, I am excited about the company’s foray into AI data centers using its cooling technology. Finally, the halving event that I first wrote about in October 2023 last year has already come and gone, so the decreased mining output is already “baked in” the current price of Marathon’s stock.

In terms of valuation, based on the last 10-Q the company has roughly $375.3 million in long-term liabilities and about $256 million in Cash. The company also recently raised $300 million in Convertible Senior Notes, which it used to purchase $249 million worth of Bitcoin. Based on the latest September update, has about 26,842 BTC. At Bitcoin’s current price of $68,396, the company’s Bitcoin assets plus its cash minus its debt is $1.416 billion.

At Marathon’s current stock price, its market cap is about $5.560 billion. In other words, you are paying about 3.9x asset value per share. This is a reasonable valuation compared to the 3.4x median Price to Book value. Note: that I’ve used this valuation method as Marathon is not profitable on a Gross Income level and a good chunk of its Revenue comes from mark-to-market gains on the increased price of Bitcoin. Also, the vast majority of its hardware assets on its books (i.e. mining rigs) have a very short useful life.

I’ve been debating on whether to rate Marathon as a “Hold” or as a “Buy”. Ultimately, it comes down to what you believe about the future of the company. I am switching gears to a very speculative “Buy rating” as I think the company has many paths to be successful moving forward. I am particularly interested in the application of its technology to the AI industry.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in MARA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: Beyond Bitcoin, Into New Avenues appeared first on Up2info.com.

• Marathon Digital’s pivot to Kaspa mining has likely not yielded lasting profitability, as mining difficulty has increased simultaneous to a 25% drop in KAS price.
• Bitcoin mining remains challenging with profitability near historic lows, despite MARA’s Slipstream product slightly boosting transaction fee revenue.
• MARA’s strategy of borrowing to buy Bitcoin has significantly increased its BTC holdings, but at higher interest rates compared to competitors like MicroStrategy.
• With 25.7% short interest, MARA shares are highly shorted, reflecting market skepticism, yet potential for short squeezes could drive price spikes.

Back in May when I last wrote about Marathon Digital Holdings (NASDAQ:MARA) for Seeking Alpha, I called the stock a ‘hold’ and made note of the company’s edge over other mining pools in average block fees. I also highlighted the trend in production and industry profitability, among other things. Since then, we have some new catalysts that I think lend credence to the notion that MARA shares will ultimately serve as little more than trading instruments rather than a quality investment over time.

In this update, we’ll look at MARA’s ‘diversification’ of the company’s mining footprint to another cryptocurrency, re-assess how MARA Pool is progressing against the competition, and consider the company’s new BTC acquisition strategy.

Pivoting To Kaspa Mining

In late-June, MARA announced it had begun mining Kaspa (KAS-USD) in addition to its Bitcoin (BTC-USD) mining operation to diversify away from just BTC. In the press release, MARA mentioned the Kaspa mining strategy actually started in September 2023. Marathon also noted Kaspa mining margins of up to 95% in certain cases, given the price of KAS and the low network difficulty rate for miners. Marathon guided for full energization of its 60 petahash Kaspa ASIC purchases by the end of Q3. The chart below is quite telling:

Kaspa currently has a global hash rate approaching 1.2 EH/s. But what I find interesting is the timing of the enormous spike in KAS mining in mid-July. The global hash rate for Kaspa mining was 0.35 EH/s the day Marathon announced its Kaspa mining strategy. Global exahash is now roughly three times that level, and yet, the price of KAS is actually down 25%:

So any real Kaspa profit edge that MARA had in June before announcing its Kaspa strategy is likely gone at this point. It’s three times more difficult to generate a coin that is worth 25% less than it was the day of MARA’s press release. If the company’s goal was to tout a profitable new business line, it doesn’t appear that it has lasted very long.

Bitcoin Mining Challenges

I think it’s important to understand that the very notion that MARA would mention Kaspa mining is not a small admission from the biggest public miner in the industry that mining BTC is a bad business:

Though it’s slightly ahead of the lows from August and September, the US dollar-denominated hash price for Bitcoin has been under $50 per PH/s for most of the last 5 months. Bitcoin mining profitability is still very much near the lowest levels in the history of the chain. I’ve covered this ad nauseam at this point, but the fixed supply of the native asset means miners need higher BTC prices in perpetuity or a larger share of transaction fees as a percentage of total rewards.

I think it should go without saying, Bitcoiners would want to see the latter option be the way miners are incentivized going forward. So far, we’re simply not seeing the stickiness of transaction fees for longer than a few weeks at a time. Since the April halving, transaction fee percent of total miner rewards has averaged about 4%. This is inline with what the average has been since the beginning of 2022. However, more recently, that average has dipped back below 2%.

To company’s credit, MARA has taken steps to get more than its ‘fair share’ of revenue from transactions through its Slipstream product. I covered this in my last MARA article from May, and I would recommend reading that for more details. But the main takeaway is MARA Pool can generate more from transaction fees if users decide to go to MARA directly for transaction validation. In May, MARA Pool was getting an 11% bump over expected block fees, which, I believe, was a direct result of Slipstream.

Click to enlarge

Source: Mempool, last 6 months as of 10/16/24

We’ve since seen a normalization of that block fee premium going to MARA Pool. As of article submission, the block fee bump for MARA Pool is just 0.65% over the last 6 months. The good news is, MARA Pool is still outperforming the other mining pools even at that rate.

Adopting The ‘Infinite Money Glitch’

Bitcoin mining is a very difficult business long term; that’s fairly obvious at this point. I suspect MARA already knows the same is true for Kaspa mining today – which has 87% of its total supply already mined. What can the company do to benefit from long term price appreciation of BTC if there is only so much mining revenue remaining? It can adopt the ‘infinite money glitch’ approach that has been pioneered by MicroStrategy (MSTR):

Since the end of June, we’ve seen MARA’s BTC position explode from 18,536 to 26,842 BTC. The company has mined 2,070 BTC since the end of June but grown its treasury by over 8.3k BTC over that period of time. This 45% three-month rip in MARA’s HODL stash is mostly attributable to MARA borrowing to buy Bitcoin. The company bought $100 million in BTC in July and $249 million worth of BTC in August.

For the August purchase, Marathon Digital issued $300 million in convertible senior notes due in 2031. These notes pay 2.125% interest, which is a much higher rate than what MicroStrategy has been paying creditors to do exactly the same thing. The good news is at $67k, Marathon already has a $31 million paper gain on those August BTC purchases as they came at an average price of $59.5k.

Short Interest Headed Higher

For me, the long term investment thesis for MARA shares is getting a bit more challenging. The company’s mining operation needs higher BTC prices to be profitable. I believe the Kaspa mining experiment is already a non-winner. And the short interest in the company probably tells the tale:

At 25.7%, MARA has the largest percentage of shares outstanding sold short of any of the top 5 BTC mining companies in the public markets. Being a highly shorted stock isn’t anything new to MARA, but the current 25.7% level would be near the high of the year. There are two ways to look at this, though. On one hand, shorting a stock shows a high level of conviction in future price declines and with more than a quarter of the shares sold short, the market is telling investors this is not a stock to buy.

On the other hand, if the bears are wrong and are forced to cover, we could theoretically see an explosion to the upside as bears get squeezed:

We saw this happen twice in 2023 when short interest declines directly coincided with large price moves higher for MARA shares. Essentially, bears may not be wrong about the fundamental problems with Marathon’s long-term business model, but that doesn’t necessarily mean the price of MARA shares can’t move higher anyway.

Investor Takeaways

I’m still rating MARA shares a ‘hold’ today because I suspect Bitcoin is very close to a technical breakout of 6 month resistance. Due to the fact that MARA has such a large BTC position, I suspect BTC price appreciation will drag MARA shares higher as well. But there can be little doubt at this point that the market has been rewarding BTC miners that have pivoted to HPC services. MARA seems to be pivoting more to the MicroStrategy model of borrowing long term to buy Bitcoin. If you like that approach, MSTR is probably a much better expression of that idea because the company has lower borrow costs and doesn’t have the depreciation baggage that public miners have.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of KAS-USD, BTC-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I'm not an investment advisor.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: Mining Kaspa Doesn’t Fix The Fundamental Problem appeared first on Up2info.com.

• MARA Holdings is diversifying beyond BTC mining, exploring data center cohosting, infrastructure integrations, and heat generation partnerships to offset declining BTC profitability.
• MARA’s HODL strategy involves holding BTC for value appreciation while mining and selling Kaspa to cover operational costs, despite increased mining costs post-BTC halving event.
• The firm faces challenges as a late entrant in the data center cooling market and may struggle to gain significant market share with its dual immersion technology.
• I rate MARA as a SELL with a price target of $10.62/share due to added risks from the HODL strategy and potential difficulties in new ventures.

MARA Holdings (NASDAQ:MARA) is positioning itself beyond their single-revenue stream of mining and selling BTC. The firm is actively seeking additional avenues as BTC becomes less profitable as a result of the April halving event and the higher global hashrate, pushing the firm into other related areas, such as data center cohosting with AI inferencing, infrastructure integrations that resemble their own spin on Super Micro Computer’s (SMCI) business, and partnering with municipalities for providing heat generation as a result of BTC mining. Given the potential headwinds at play as the firm transitions their strategy, I recommend MARA with a SELL rating with a price target of $10.62/share at 2x Price/BTC value.

MARA Operations

Management announced their initiative to reinstate their BTC HODL strategy once used in early 2021 during the height of the BTC craze prior to the crypto winter that occurred in the subsequent year.

BTC had since recovered and peaked just shy of $75,000/BTC, a major run-up since the decline experienced in 2022. Though BTC has since come off its March highs, the market mechanics have shifted from a more volatile asset that remained out of most investors’ reach to an institutionalized asset that can be held in every retirement account through major brokerages as a result of the launch of BTC ETFs.

I believe that the launch of BTC ETFs has led to more stability in the cryptocurrency, which is potentially one of the factors that has led management at MARA to reinitiate their HODL strategy. As announced in q2’24, MARA purchased $100mm in BTC and will no longer sell mined BTC as part of their HODL strategy.

Another factor may be margins as a result of the halving event. Though it shouldn’t be considered a 1:1 metric given the hosting services tied into the costs, the average mining & hosting services cost per BTC produced increased from $17.71/BTC in q4’23 to $32.09/BTC in q1’24 and $45.62/BTC in q2’24. Depending on management’s hosting initiatives going forward, this cost per BTC may decline back to around q1’24 levels as the firm delineates from that line of work.

To offset the loss of revenue production as a result of MARA’s HODL mandate, management is mining Kaspa at an 80% margin. Kaspa is a much smaller coin at $4b in market cap with an average daily trading volume of $60mm. According to CoinMarketCap, Kaspa has a max supply of 28.7b coins with 24.7b currently in circulation, leaving roughly 4b of the coin left to mine.

Accordingly, Kaspa is relatively correlated to BTC, offering similar exposure to the BTC market with improved margins. As part of MARA’s HODL strategy, holding BTC with the hopes of price appreciation while selling mined Kaspa to offset mining and operating costs can potentially provide certain value to MARA.

My final thought on MARA’s HODL strategy is that the firm may be positioning itself to compete with the BTC ETFs, such as iShares Bitcoin Trust (IBIT), VanEck Bitcoin Trust (HODL), or Grayscale Bitcoin Mini Trust (BTC). Arguably, MARA may be competing closer to MicroStrategy (MSTR), whose initiative is to purchase and “HODL” BTC with the expectation of price appreciation. Given MARA’s $2300mm debt offering in August to purchase $249mm in BTC and $345mm in equity sales to acquire $100mm in BTC in July, the firm is beginning to resemble the leveraged strategy that MicroStrategy is touting.

Comparing MARA’s BTC mining operations in 2024 to 2023, it is clear that the halving event has significantly impacted operations despite the infrastructure challenges faced in q1-2’24. I have reason to believe that management has realized that pure BTC mining is becoming less and less sustainable, leading to the diversification of revenue streams.

Looking to additional revenue streams MARA is seeking to take on, there may be some uphill challenges that the firm may be faced with being a late mover. Starting with infrastructure, MARA is seeking to enter the data center cooling space to compete with direct air and liquid cooling. Management discussed in their q2’24 earnings call that they will be seeking to enter the market with their two-phase immersion cooling system as a competitor to direct liquid cooling. Accordingly, the immersion systems boasts 2-4x the power density of competing cooling systems and require upwards of 75% the space in the data center. Management also suggested that the firm may enter the server rack space as well, competing with firms like SMCI and now Advanced Micro Devices (AMD) with their recent acquisition of ZT Systems for full-stack design.

MARA will also be users of their infrastructure for mining operations. This may play into their goal of co-investment in new data centers to host AI inferencing in addition to their BTC mining in order to act as a load balancer to AI applications. This may play out to MARA’s benefit given the heightened demand for AI factories for training and inferencing; however, I do not believe that the bottlenecks are the data centers themselves but sourcing all the materials in order to construct the data centers. Given that Oracle Corp. (ORCL) is constructing 100 new data centers for AI training and inferencing in partnership with Microsoft (MSFT), there may be a crowding out effect amongst the hyperscalers as MARA attempts to become a new entrant. A co-investment will likely be driven regionally and will likely be driven by enterprises or 2^nd & 3^rd tier hyperscalers as the majors will likely prefer to leverage their own data center.

Lastly, MARA launched a pilot in Finland to leverage their digital compute assets to offer a low-cost alternative to district heating by converting clean energy into heat on-site. I believe that this feature poses as a strong business case as an alternative to conventional heating given the amount of heat mining machines generate. This is essentially replacing an electricity-to-heat conversion with an electricity-to-BTC mining-to-heat, allowing for the power conversion to be utilized to mine both BTC and generate heat as opposed to just generating heat.

At of q2’24, MARA has launched 2MW as it pertains to the project in Finland that is capable of warming a town of 11,000 residents using their digital asset computing. Management anticipates increasing capacity to 4MW by the end of the year.

MARA Financials

MARA did run into a few challenges in q1’24 that bled into q2’24 as it pertains to power transmission and unexpected equipment failures at 3^rd party operated sites. As a result, production was significantly impacted by both these factors and the April halving event. MARA also faced headwinds due to the increased global hashrate. The firm also faced cost headwinds as a result of higher hosting and energy costs as the company deploys and energizes mining rigs in both existing and new facilities.

For e2h24, I’m forecasting the firm to improve their daily production as the infrastructure challenges are resolved; however, given that BTC will be held and put sold, revenue may experience a modest sequential decline in eq3’24. I believe that the new HODL operating structure will result in higher mining & hosting costs with a moderation of revenue as the firm seeks to hold BTC. Management suggested in the q2’24 earnings call that a $10,000 price change in BTC will result in a ~$200mm impact on earnings due to their HODL position.

I believe that this will result in revenue reaching $625mm in eFY24 with an aEBITDA margin of 58%. I’m forecasting diluted EPS to come in at $0.14/share for eFY24 as e2h24 margins will offset the positive net income generated in q1’24.

Risks Associated With MARA

Bull Case

With the popularity of holding BTC in retirement accounts and the reinitiation of their HODL strategy, MARA is positioning itself to act as a BTC proxy to compete with the likes of BTC ETFs and MicroStrategy as a leveraged BTC holding company. If the price of BTC appreciates going forward, MARA will be in a strong position to sell BTC at a profitable rate. MARA is also diversifying their revenue streams in heating and infrastructure, allowing for the firm to realize more durable and sustainable earnings going forward.

Bear Case

MARA is a late entrant in the infrastructure space and may not realize the level of market share necessary for their dual immersion technology to be profitable. Despite BTC being more widely held across retirement funds, the risk of a sell-off still remains prevalent given that BTC may be used for raising cash. This may be driven by the investments’ volatility and lack of income generation when compared to defensive stocks. According to Coinspeaker, BTC ETFs experienced a $1.2b outflow between August 26, 2024 through September 7, 2024.

Valuation & Shareholder Value

Do note that my valuation summary includes the $300 in debt, the total BTC holdings as of their August 31, 2024 mining update, and the current value of BTC.

MARA’s shares trade at a 3x premium to their total BTC holdings. This compares to MSTR’s premium of 1.87x. The ultimate question when considering an investment in MARA is whether the firm’s BTC mining operations deem a higher multiple when compared to a firm that engages in HODL’ing BTC. I believe that given MARA is transitioning their operations from generating revenue through the mining and sales of BTC to alternative avenues, MARA’s financial position may modestly decline in the near-term, resulting in the firm turning to the debt and equity markets to raise capital to both sustain operations and purchase more BTC.

Given this factor, I rate MARA with a SELL rating with a price target of 10.62/share at 2x price/BTC value.

My rationale for the SELL rating is that MARA is adding an additional risk factor to their operations by holding BTC for value appreciation as opposed to mining BTC to generate revenue. Though this strategy may play out in the long run, I believe there are more appropriate avenues to investing in BTC, specifically the BTC ETFs. In addition to this, MARA’s alternative strategies net of Kaspa may not play out due to the firm being a late entrant and the decline in the renewable energy story.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ORCL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings Is Turning Into A Leveraged Bitcoin Fund appeared first on Up2info.com.

• An ongoing mean reversion on Bitcoin miner valuations, potentially mispricing MARA based on a potential Bitcoin run.
• MARA, at current valuations, can benefit disproportionally compared to other Bitcoin miners in the coming potential bull run.
• This article explains why it is justifiable for unprofitable Bitcoin miners trading at PBR>1 and why MARA’s shareholder dilution may not matter.
• This opportunity also acts as a risk for MARA as MARA lacks alternative proposition from cost efficiencies and profitability aspects.
• While we can’t give a buy rating now, MARA ranks high in our watchlist as we await Bitcoin’s 2 confirmations for a potential bull run.

Introduction

In our previous article, we suggested that investors in Marathon Holdings (NASDAQ:MARA) should bet on its three characteristics: growing reserves, financially sustainable operations, and the ability to raise capital at good valuations to acquire underperforming competitors.

Over the past 2 quarters, we think that MARA has performed well in 2 out of the 3 fronts. We saw MARA grow its reserves by 64%, from 15,741 Bitcoins in January to 25,945 in August. It also raised capital at reasonable valuations to make acquisitions (although its acquisitions of Bitcoin and not Bitcoin miners, like Riot Platform’s (RIOT) acquisition of Bitfarms (BITF)). The only front MARA did not perform is on its operating cost efficiencies, resulting from its declining network share, an issue we pointed out in our previous article.

Considering its performance, we think there’s a market error we can exploit through MARA, potentially giving us asymmetric returns relative to other miners if it regains PBR superiority. Hence, in this article, we’ll update our thesis accordingly and also discuss why shareholder dilution may not matter in this case.

A Market Error

Opportunity in the Ongoing Mean Reversion

Currently, we are observing an ongoing mean reversion on Bitcoin miner valuations. By referring to Fig 1, we can see that MARA, which is usually trading above the sector average PBR, has now reverted back to the mean. We saw CleanSpark (CLSK), which diverted away from the mean to see significance outperformance, revert back to the mean. We also saw Iris Energy (IREN), which usually trades below the sector average PBR due to the lack of Bitcoin reserves, revert back to the mean.

When the market reverts to the mean, the valuation dynamic changes. This creates an opportunity to scoop up certain stocks that were previously overvalued and are now potentially undervalued, hence the market error.

In a podcast 3 years ago, Howard Marks mentioned that the best asset allocation strategy to be “cautiously long” is to allocate within the asset class. He explained that within every asset class, there’ll be assets that perform better in good times and worse in bad times, and vice versa. This is the strategy we unknowingly followed when we tilted our portfolio between Bitcoin and Bitcoin miners in the past. This is also the strategy we’re currently undertaking in preparation for a potential upcoming bull run. Hence, our ongoing series of analyses of Bitcoin miners aims to identify the best Bitcoin miners to tilt into.

This thesis represents how we might find MARA fitting in our portfolio.

Is A Price-to-book value ratio (‘PBR’) >1 Justifiable for Unprofitable Bitcoin Miners?

Let’s turn our attention back to Fig 1. Aside from the mean reversion that is taking place, we can also see that the sector average PBR fluctuates over time. This fluctuation can be explained by Bitcoin optimism and pessimism. When the Bitcoin price trended up/down (Fig 2), we can see that the market average PBR also trended accordingly.

The first problem we have to address is whether unprofitable Bitcoin mining companies trading above PBR=1 is justifiable. If no, we shouldn’t be looking at it further.

Based on our experience, PBR>1 is usually a side effect of a high Price-to-earnings ratio: The market anticipates higher earnings, appreciates the share price, and causes PBR to increase alongside PER as book value remains the same.

Now, consider an entity that does not generate any income, its value would simply be worth its assets (assuming no depreciation), hence PBR = 1. An unprofitable business without a profitability prospect would trade PBR<1 because losses will eat into its assets (Refer to Fig 1 between 2022Q2 and 2022Q4).

So, is Unprofitable Bitcoin companies trading at PBR>1 justifiable?

Yes, unprofitable Bitcoin miners can justify a PBR>1 because their quarterly reported profits are not realized profits unless the Bitcoins mined are sold.

Profitability is realized in cash. In traditional businesses that operate with cash transactions, if a deal is unprofitable, it remains unprofitable – there’s no changing that. In contrast, a Bitcoin mining company can HOLD until Bitcoin appreciates above its costs basis to realize profits.

So, Bitcoin optimism will lead investors to expect the sale of Bitcoin at higher prices to cover the previous costs. Hence, unprofitable Bitcoin miners can indeed justify a PBR>1 on Bitcoin optimism.

This problem has to be addressed, all major Bitcoin miners are now unprofitable (and are often unprofitable).

The Thesis

With the justification of PBR>1 out of the way, we can now look at our investment thesis for MARA.

Given our expectation of a potential bull run, we should also expect the sector average PBR to increase. This would essentially benefit all Bitcoin miners. Recall that there are assets that will perform better during good times. We think that there are fundamental reasons why MARA can be the best performing Bitcoin miner.

PBR favors companies with appreciable (or at least depreciation-resistant) assets but does not account for shareholder dilution. It is after considering shareholder dilution, only then we can measure how much value we, as (potential) shareholders, can extract. So we have to look at both aspects.

In terms of Book Value, a Bitcoin bull run favors a Bitcoin mining with a higher proportion of Bitcoin on its balance sheet. It’s not about the amount of Bitcoins but the proportion. It’s like allocating 1% of a portfolio to Bitcoin, even if Bitcoins double, it would only contribute a 1% portfolio return. So, it’s the proportion that matters.

Regarding Bitcoin proportion on the balance sheet, MARA ranks No. 1 by a margin (Fig 3). Hence, MARA’s book value is fundamentally able to extract more value from a Bitcoin bull run than other miners.

Based on the prospect of book value appreciation combined with a higher average sector PBR driven by Bitcoin optimism, we expect MARA to benefit disproportionately compared to other Bitcoin miners.

In terms of shareholder dilution, MARA is also the best performer. Not only did MARA’s shareholder equity (per share) not decrease, but it increased (Fig 4). This means that MARA’s shareholders did not lose any equity despite almost tripling outstanding shares since 2022Q1.

Table 1. MARA’s Historical Shares Outstanding

Click to enlarge

Combining MARA’s strong book value prospects with minimal shareholder dilution, it is reasonable to conclude that the market has mispriced MARA at the sector’s average PBR. Among the strategies available to trade this mean reversion, we find that MARA offers the best return-risk profile. Another available mean reversion play is RIOT, though we perceived it to be significantly riskier. (The article on RIOT is undergoing editorial process and will be available soon)

The Risk

There’s risk to every thesis, including this one. The risk to this thesis is the same as its opportunity, in addition to the lack of an alternative proposition.

Remember that some assets within the same asset class might do poorly during bad times? MARA could be one of them in the sector. During a Bitcoin drawdown, MARA’s book value will suffer the most because of the larger proportion of Bitcoin.

In addition, MARA lacks alternative proposition such as high operating cost efficiency, growing network share, or other profitability proposition. MARA’s cost basis is higher than the sector average (Fig 5) while losing network share (declining Bitcoin production (Fig 6)). This could also imply that MARA might not be able to maintain its performance in the shareholder dilution aspect. Just look at what happened to MARA’s PBR in 2022Q4 in Fig 1.

Therefore, since MARA’s thesis is centered around its book value, we must be cautious about exposing ourselves only to situations that benefit high-book-value companies. That’s why it is crucial for us to wait for the 2 confirmations before holding a Bitcoin bullish bias. If a Bitcoin bull run does not take place, then MARA could perform worse than the sector.

Verdict

We often receive comments here on Seeking Alpha about “Bitcoin is a scam” or “Bitcoin is going to 0”. While that may still be true, we always have to ask “when?” and “why?”. The same applies to stocks. You can read on our doomsday scenario where Bitcoin could go to $0 here.

For now, we think that MARA’s valuation at 2 PBR is an opportunity we can exploit. While we can’t rate it as a “buy” right now, we can see how MARA might fit into our portfolio alongside CLSK. For now, we’ll wait for the 2 confirmations before further actions.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BTC-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: A Market Mistake Where Investors Can Exploit appeared first on Up2info.com.

• An ongoing mean reversion on Bitcoin miner valuations, potentially mispricing MARA based on a potential Bitcoin run.
• MARA, at current valuations, can benefit disproportionally compared to other Bitcoin miners in the coming potential bull run.
• This article explains why it is justifiable for unprofitable Bitcoin miners trading at PBR>1 and why MARA’s shareholder dilution may not matter.
• This opportunity also acts as a risk for MARA as MARA lacks alternative proposition from cost efficiencies and profitability aspects.
• While we can’t give a buy rating now, MARA ranks high in our watchlist as we await Bitcoin’s 2 confirmations for a potential bull run.

Introduction

In our previous article, we suggested that investors in Marathon Holdings (NASDAQ:MARA) should bet on its three characteristics: growing reserves, financially sustainable operations, and the ability to raise capital at good valuations to acquire underperforming competitors.

Over the past 2 quarters, we think that MARA has performed well in 2 out of the 3 fronts. We saw MARA grow its reserves by 64%, from 15,741 Bitcoins in January to 25,945 in August. It also raised capital at reasonable valuations to make acquisitions (although its acquisitions of Bitcoin and not Bitcoin miners, like Riot Platform’s (RIOT) acquisition of Bitfarms (BITF)). The only front MARA did not perform is on its operating cost efficiencies, resulting from its declining network share, an issue we pointed out in our previous article.

Considering its performance, we think there’s a market error we can exploit through MARA, potentially giving us asymmetric returns relative to other miners if it regains PBR superiority. Hence, in this article, we’ll update our thesis accordingly and also discuss why shareholder dilution may not matter in this case.

A Market Error

Opportunity in the Ongoing Mean Reversion

Currently, we are observing an ongoing mean reversion on Bitcoin miner valuations. By referring to Fig 1, we can see that MARA, which is usually trading above the sector average PBR, has now reverted back to the mean. We saw CleanSpark (CLSK), which diverted away from the mean to see significance outperformance, revert back to the mean. We also saw Iris Energy (IREN), which usually trades below the sector average PBR due to the lack of Bitcoin reserves, revert back to the mean.

When the market reverts to the mean, the valuation dynamic changes. This creates an opportunity to scoop up certain stocks that were previously overvalued and are now potentially undervalued, hence the market error.

In a podcast 3 years ago, Howard Marks mentioned that the best asset allocation strategy to be “cautiously long” is to allocate within the asset class. He explained that within every asset class, there’ll be assets that perform better in good times and worse in bad times, and vice versa. This is the strategy we unknowingly followed when we tilted our portfolio between Bitcoin and Bitcoin miners in the past. This is also the strategy we’re currently undertaking in preparation for a potential upcoming bull run. Hence, our ongoing series of analyses of Bitcoin miners aims to identify the best Bitcoin miners to tilt into.

This thesis represents how we might find MARA fitting in our portfolio.

Is A Price-to-book value ratio (‘PBR’) >1 Justifiable for Unprofitable Bitcoin Miners?

Let’s turn our attention back to Fig 1. Aside from the mean reversion that is taking place, we can also see that the sector average PBR fluctuates over time. This fluctuation can be explained by Bitcoin optimism and pessimism. When the Bitcoin price trended up/down (Fig 2), we can see that the market average PBR also trended accordingly.

The first problem we have to address is whether unprofitable Bitcoin mining companies trading above PBR=1 is justifiable. If no, we shouldn’t be looking at it further.

Based on our experience, PBR>1 is usually a side effect of a high Price-to-earnings ratio: The market anticipates higher earnings, appreciates the share price, and causes PBR to increase alongside PER as book value remains the same.

Now, consider an entity that does not generate any income, its value would simply be worth its assets (assuming no depreciation), hence PBR = 1. An unprofitable business without a profitability prospect would trade PBR<1 because losses will eat into its assets (Refer to Fig 1 between 2022Q2 and 2022Q4).

So, is Unprofitable Bitcoin companies trading at PBR>1 justifiable?

Yes, unprofitable Bitcoin miners can justify a PBR>1 because their quarterly reported profits are not realized profits unless the Bitcoins mined are sold.

Profitability is realized in cash. In traditional businesses that operate with cash transactions, if a deal is unprofitable, it remains unprofitable – there’s no changing that. In contrast, a Bitcoin mining company can HOLD until Bitcoin appreciates above its costs basis to realize profits.

So, Bitcoin optimism will lead investors to expect the sale of Bitcoin at higher prices to cover the previous costs. Hence, unprofitable Bitcoin miners can indeed justify a PBR>1 on Bitcoin optimism.

This problem has to be addressed, all major Bitcoin miners are now unprofitable (and are often unprofitable).

The Thesis

With the justification of PBR>1 out of the way, we can now look at our investment thesis for MARA.

Given our expectation of a potential bull run, we should also expect the sector average PBR to increase. This would essentially benefit all Bitcoin miners. Recall that there are assets that will perform better during good times. We think that there are fundamental reasons why MARA can be the best performing Bitcoin miner.

PBR favors companies with appreciable (or at least depreciation-resistant) assets but does not account for shareholder dilution. It is after considering shareholder dilution, only then we can measure how much value we, as (potential) shareholders, can extract. So we have to look at both aspects.

In terms of Book Value, a Bitcoin bull run favors a Bitcoin mining with a higher proportion of Bitcoin on its balance sheet. It’s not about the amount of Bitcoins but the proportion. It’s like allocating 1% of a portfolio to Bitcoin, even if Bitcoins double, it would only contribute a 1% portfolio return. So, it’s the proportion that matters.

Regarding Bitcoin proportion on the balance sheet, MARA ranks No. 1 by a margin (Fig 3). Hence, MARA’s book value is fundamentally able to extract more value from a Bitcoin bull run than other miners.

Based on the prospect of book value appreciation combined with a higher average sector PBR driven by Bitcoin optimism, we expect MARA to benefit disproportionately compared to other Bitcoin miners.

In terms of shareholder dilution, MARA is also the best performer. Not only did MARA’s shareholder equity (per share) not decrease, but it increased (Fig 4). This means that MARA’s shareholders did not lose any equity despite almost tripling outstanding shares since 2022Q1.

Table 1. MARA’s Historical Shares Outstanding

Click to enlarge

Combining MARA’s strong book value prospects with minimal shareholder dilution, it is reasonable to conclude that the market has mispriced MARA at the sector’s average PBR. Among the strategies available to trade this mean reversion, we find that MARA offers the best return-risk profile. Another available mean reversion play is RIOT, though we perceived it to be significantly riskier. (The article on RIOT is undergoing editorial process and will be available soon)

The Risk

There’s risk to every thesis, including this one. The risk to this thesis is the same as its opportunity, in addition to the lack of an alternative proposition.

Remember that some assets within the same asset class might do poorly during bad times? MARA could be one of them in the sector. During a Bitcoin drawdown, MARA’s book value will suffer the most because of the larger proportion of Bitcoin.

In addition, MARA lacks alternative proposition such as high operating cost efficiency, growing network share, or other profitability proposition. MARA’s cost basis is higher than the sector average (Fig 5) while losing network share (declining Bitcoin production (Fig 6)). This could also imply that MARA might not be able to maintain its performance in the shareholder dilution aspect. Just look at what happened to MARA’s PBR in 2022Q4 in Fig 1.

Therefore, since MARA’s thesis is centered around its book value, we must be cautious about exposing ourselves only to situations that benefit high-book-value companies. That’s why it is crucial for us to wait for the 2 confirmations before holding a Bitcoin bullish bias. If a Bitcoin bull run does not take place, then MARA could perform worse than the sector.

Verdict

We often receive comments here on Seeking Alpha about “Bitcoin is a scam” or “Bitcoin is going to 0”. While that may still be true, we always have to ask “when?” and “why?”. The same applies to stocks. You can read on our doomsday scenario where Bitcoin could go to $0 here.

For now, we think that MARA’s valuation at 2 PBR is an opportunity we can exploit. While we can’t rate it as a “buy” right now, we can see how MARA might fit into our portfolio alongside CLSK. For now, we’ll wait for the 2 confirmations before further actions.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BTC-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post MARA Holdings: A Market Mistake Where Investors Can Exploit appeared first on Up2info.com.