Marathon Digital (MARA) Stock Rallies but Faces Potential Risks

Trending stock of the day

Marathon Digital (NASDAQ: MARA) is a leading Bitcoin mining company with over 210k mining rigs in Texas, North Dakota, Abu Dhabi, and Paraguay. It has a market cap of over $6.95 billion, making it the biggest Bitcoin mining company in the world. 

Marathon Digital has grown its business in the past few years by adding the number of rigs and diversifying its business. In June, the company announced that it had launched its Kaspa mining operation. Kaspa is a leading proof-of-work cryptocurrency with a market cap of over $4.26 billion. 

Marathon is also exploring expanding into the fast-growing Artificial Intelligence (AI) industry. In this, its data centers will be used to handle the vast workloads that exists in the AI sector. 

This diversification is necessary as the Bitcoin mining difficulty rises and the block rewards falls after April’s halving. Indeed, recent data shows that it mined 590 Bitcoins in June, a 40% drop from the 979 coins it mined in June 2023. It was also a 4% lower than the 616 it mined in May. 

Marathon Digital’s social hype jumped by 97% on Tuesday as cryptocurrency prices bounced back. Its stock has soared to $24.5, its highest point since March this year.

Positive Hype

Marathon Digital and other Bitcoin mining stocks have been among the best performers this year as Bitcoin soared to $65,000. Its stock jumped by almost 20% on Monday, pushing its valuation to almost $7 billion. 

• Bitcoin price bounced back after tumbling to $53,700 earlier this month as the German government moved its coins to exchanges. It rose to the psychologically important point at $65,000, its highest point since June 20th.

• Bitcoin and other cryptocurrencies rose after Donald Trump’s shooting on Saturday. Trump’s shooting raised the possibility that he will win the next general election, especially if he competes with Joe Biden. Data by Polymarket shows him with a 71% chance of victory. 

• Donald Trump is viewed favorably in the crypto industry, which explains why big players like Winklevoss Twins and Kraken’s Jesse Powell have donated to him. He has pledged to protect the industry and support self-custody. 

• A Trump victory also means that the SEC could be headed by a leader who favors a light-touch approach to regulations.  

• Bitcoin also jumped as spot ETFs continued adding assets. All ETFs added 4,184 coins worth $263 million. They have added 17,440 coins in the past seven days. 

• Further, Larry Fink, the CEO and founder of Blackrock, has come out in support of Bitcoin. In a CNBC interview, he noted that he was wrong for criticizing Bitcoin in the past. He now believes that it is a good store of value. 

• Meanwhile, Federal Reserve’s Jerome Powell hinted that the bank would start cutting interest rates before inflation hits 2%. The Fed is concerned about the labor market as recent data revealed that the jobless rate rose to 4.1% in June. 

Bitcoin mining companies like Marathon Digital do well when Bitcoin is in an uptrend for two key reasons. Higher prices lead to more margins, especially now that production has been limited by the halving event.

Second, it increases the value of its Bitcoin holdings. It ended June with 18,536 coins, up by 4% from May’s 17,857. Bitcoin’s move from this month’s low of $53,700 to $65,000 has pushed these coins’ value by over $209 million.

Negative hype

Marathon Digital and other Bitcoin mining companies face several risks that could affect their stocks.

• Marathon Digital’s Bitcoin mining costs are higher than other companies like CleanSpark, TeraWulf, and Core Scientific. 

• There is a risk that the ongoing Bitcoin recovery will be brief since, technically, it has formed a significant double-top pattern at $72,000.

• Marathon’s revenue growth will be limited unless the Bitcoin rally continues since it is mining fewer coins than in the first quarter. 

• Mt.Gox wallets with 138,98 coins could start liquidating them to repay customers. Bitcoin dropped to $53,700 as Germany sold 50k coins, meaning that 138k could have a major impact on the coin.

Marathon Digital: The bottom line

Marathon Digital stock has benefited from this week’s Bitcoin rebound. If the recovery accelerates, it could lead to higher margins in the third quarter. However, a complete rebound will only be confirmed if Bitcoin flips the year-to-date high of $73,400. 

Such a move, if supported by higher volume, will invalidate the double-top pattern and raise the possibility of it soaring to $100k by the end of the year. 

Looking ahead, Marathon will publish its second-quarter results on August 8th. Analysts expect the company’s revenue will rise to $157 million while its loss per share will be 9 cents. 

Technically, MARA stock has remained above the 100-day and 200-day Exponential Moving Averages (EMA), a potential bullish sign.

Marathon Digital stock chart

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