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You could argue that Marathon Digital Holdings (NASDAQ:MARA) is something of a Bitcoin proxy. For investors who live in jurisdictions where there are restrictions on accessing cryptocurrency cheaply and efficiently, companies like this can provide some of the upside exposure with a bit less of the volatility.

Marathon Digital Holdings has seen its stock price pick up again as the Bitcoin price began rallying. Shares rose from a summer low of around $20 on NASDAQ and are now trading at close to $40 at time of writing. Stock was probing the $60 during the last big Bitcoin boom, so if we see BTC off to the races again, investors could be witness to a potential 30%+ gain from where the company is trading now.

Marathon IS a Bitcoin miner (one of the biggest such in North America), and with much of the planet’s BTC mining capacity taken offline by the Chinese government earlier in the year, Marathon has been working hard to make up the difference. As of the start of this month the company reported that it had minted approximately 1757.9 bitcoins in 2021.

In many respects it looks similar to the likes of Argo Blockchain (LSE:ARB) or Cypherpunk Holdings (CSE:HODL) – listed companies which can provide investors with indirect exposure to cryptocurrency markets as they continue to evolve.

August was the best month for the year for Marathon Digital, with 469.6 Bitcoins minted, versus 442.2 in July. By comparison, in January it only mined 50. It currently holds 6695 BTC, including a reserve it purchased in January (4812 acquired at an average price of $31,000).


Why the big increase in mining activity?

Marathon is buying specialist Bitcoin miners to expand its overall production capacity to over 133,000 mining machines total. It is claiming that it can build the capacity to generate around 12% of the total Bitcoin network hash rate by some point next year. It slapped a big order in for mining machines – specifically Antminer S19J Pro machines, from Bitmain, in August.

Key challenges for the company remain in the next 12 months: shipping and installing of the mining machines takes time and now is dependent on a global logistics and shipping system which frankly looks parlous. CEO Fred Thiel readily admitted that power outages at its local power plant source and shipment issues surrounding the Bitmain order are the biggest challenges.

Marathon Digital is using Compute North to help it with the preparation of new locations where it will install new mining machines as they arrive.

Latest results

The company report a total revenue increase of 220% (to $29.3m) in its last set of results in early August. Non-GAAP income from operations was $20m or 0.21 cents per diluted share. This does not include the change in the fair value of the in-house investment fund which controls the Bitcoin ‘treasury’.

This makes Marathon Digital slightly more profitable than Argo Blockchain, although we would expect both companies to do well if the Bitcoin price rises.

Fred Thiel is Marathon’s new CEO – previous CEO Merrick Okamoto is to remain on the board as executive chairman. Thiel brings a heft does of corporate experience into the business – some readers will recall he used to run GameSpy.

Marathon Digital looks to us like it will be scaling up its mining operations quickly in the next few months. This is a miner and also a storer of Bitcoin, so any increase in Bitcoin price is going to benefit Marathon. With much of the Chinese mining market now dead in the water, emphasis seems to be shifting to those North American miners with the scale to really ramp up their activities over the winter months.

Related

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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