To The Moon

Summary

• Marathon Digital Holdings has seen significant gains, up 136% YTD, outperforming the S&P 500 and NASDAQ 100.
• The company had a strong Q2 2023 performance, generating $81.8 million in revenue while reducing long-term debt by 56% in September 2023.
• The approval of Bitcoin spot ETFs could cause a spike in Bitcoin's price and have a major short-term impact on MARA shares.

NiseriN

Marathon Digital Holdings (NASDAQ:MARA) is back on my radar after a rollercoaster year due to Bitcoin's incredible volatility.

MARA shares are currently up 136% YTD and have outperformed the S&P 500 and NASDAQ 100 by a wide margin.

MARA stock short-squeezed and soared to almost $20 as Bitcoin spiked over $30,000 on hype of several Bitcoin spot ETF applications. However, SEC Chair Gary Gensler has delayed all the current applications, which caused the hype to calm down.

I took some profits on MARA around $16 and now believe MARA shares are becoming attractive again under the $10 range.

There's a lot going on with Marathon Digital Holdings so let's do a deep dive into the company as we prepare for two major catalysts: the chance for Bitcoin spot ETF approvals and the April 2024 Bitcoin halving.

Marathon's Q2 2023 Performance and Elimination of Long-Term Debt

Q2 2023 was a decent quarter for Marathon Digital despite lagging Bitcoin prices. The company generated $81.8 million in revenue (Up 314% YoY) and gained $23.4 million from selling Bitcoin to fund operations. Marathon Digital sold 67% of its mined Bitcoin in Q2 2023 while holding the remaining 33% to add to its Bitcoin stack.

Marathon Digital Q2 2023 Production (mara.com)

Net losses were $21.3 million (-$0.13 per share) compared to $212.6 million (-$1.94 per share) in Q2 2022. It's safe to say that Bitcoin is on a bullish trajectory, as the April 2024 Bitcoin halving event is only 6 months away.

The good thing about Bitcoin mining companies is that they provide monthly mining updates to give shareholders and investors deep insight into the company every 30 days.

In September 2023, Marathon Digital earned a record 4.3% share of all Bitcoin rewards. The company produced 1,242 BTC (8,610 BTC produced YTD) and holds 13,726 BTC on its balance sheet.

Out of all publicly traded Bitcoin mining stocks, Marathon Digital leads in both monthly BTC production and total BTC holdings on its balance sheet.

Publicly Traded Miners with Largest BTC Holdings

(Source: InvestorTrip.com)

The company made another important step in the right direction by eliminating 56% of its debt by converting $417 million worth of 1% 2026 senior convertible notes at a 21% discount into 31 million newly created MARA shares.

Marathon now has $471 million in cash on hand (Bitcoin + unrestricted cash) with only $331 million in long-term debt. This is a major milestone for MARA stock, since the company was known for its massive long-term debt and potential bankruptcy risk.

MARA shareholders have been diluted by 17% since the newly created shares will increase the total share outstanding to 205 million. However, there is little risk of bankruptcy as the April 2024 Bitcoin halving event approaches soon.

The Impact of Bitcoin Spot ETFs

Now, let's discuss the biggest short-term impact on MARA shares, as several major institutional investors want to offer Bitcoin to their clients via exchange-traded funds (ETFs).

There are currently 11 active Bitcoin spot ETF applications waiting for approval:

1. Grayscale Bitcoin Trust
2. Vanguard Bitcoin ETF Trust
3. Ark/21 Shares Bitcoin Trust
4. Bitwise Bitcoin ETF Trust
5. BlackRock Bitcoin ETF Trust
6. VanEck Bitcoin Trust
7. WisdomTree Bitcoin Trust
8. Valkyrie Bitcoin Fund
9. Invesco Galaxy Bitcoin ETF
10. Fidelity Wise Origin Bitcoin Trust
11. Franklin Templeton Bitcoin ETF Trust

In total, these managers have over $25 trillion in Assets Under Management (AUM) which could cause a massive spike in Bitcoin's price if approved.

The problem is nobody knows if SEC Chair Gary Gensler will approve these Bitcoin spot ETFs. According to Bitcoin.com, these Bitcoin spot ETFs could get approved in 3 to 6 months.

Bitcoin Spot ETF Approval Prediction (bitcoin.com)

That means MARA shares could spike heavily in early January if these applications get approved. A spike in Bitcoin's price is extremely bullish for MARA stock since the company mines 41 BTC on average every day plus holds 13,726 BTC on its balance sheet.

Short sellers will get crushed after the news because MARA stock has a 25% short interest with over 52 million shares being sold short.

Short sellers will be forced to buy back MARA stock to cover their losses, and we could see the beginning of another profitable MARA bull run.

Risk Factors

• Further Share Dilution: Management has increased the total shares outstanding to pay down debt but also wants shareholders to approve a LTIP (Long Term Incentive Plan) to offer more compensation to management. MARA shareholders will vote on November 10th, 2023 to decide whether management may increase the total shares outstanding to reward management for positive stock performance. If approved, I expect MARA shares to fall after November 10th once the news is digested by the market.
• Bitcoin Spot ETF Rejections: If SEC Chair Gary Gensler fails to approve the Bitcoin spot ETFs, then millions of investors won't be able to purchase Bitcoin safely through a trusted 3rd party before the April 2024 Bitcoin halving. This negative outcome will keep Bitcoin mining stocks from soaring on the positive news.
• Bitcoin Pre-Halving Dip: Bitcoin usually performs a pre-halving dip in price around 4 months leading up to the Bitcoin halving and could drop in price if history repeats itself.
• Bitcoin Mining Downtime: Marathon has experienced some downtime due to natural disasters in the past, and something like a hurricane or tornado could disrupt BTC mining production in the short run.

My Gameplan for MARA Stock

After selling MARA stock for around $16, I was shocked to see MARA shares trading at 50% in just 4 months' time.

I've been buying up MARA shares aggressively in anticipation of both the potential for several Bitcoin spot ETF approvals and the April 2024 Bitcoin halving.

Options traders may consider opening call options expiring on January 19th (Potential Bitcoin Spot ETF approval play) and April 19th 2024 (Bitcoin Halving play) to profit from the 2 major upcoming events.

Be prepared for the pre-halving dip that could send MARA stock falling to around $5 support levels.

I'm completely happy holding MARA shares since the company has the largest publicly traded Bitcoin mining stash and paid off a large portion of its long-term debt.

I plan to vote "NO" for the LITP because it dilutes shareholders and doesn't guarantee that management will work any harder for MARA shareholders.

Here's a breakdown of the payout structure based on MARA stock performance in comparison to its peers:

Marathon Digital LITP (sec.gov)

MARA shares have underperformed its 3 biggest competitors over the last 52 weeks.

Despite its underperformance, I'm thrilled to see Marathon Digital's debt shrink and am more bullish than ever on the company's long-term prospects.