Marathon Digital: Buy This Cryptocurrency Stock Before Bitcoin Recovers

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NisériN

Marathon Digital Holdings (NASDAQ:MARA) is my favorite Bitcoin (BTC-USD) mining stock, but things are not looking good as crypto mining stocks continue to be destroyed during the current bear market.

It’s hard to believe that MARA shares traded as high as $80 just over a year ago. Things have changed drastically now, as the crypto hype and euphoria is gone, along with quick and easy crypto trading gains.

MARA shares are currently trading around $4 per share, down nearly 90% in the past 52 weeks.

Data by YCharts

I am absolutely shocked at how far MARA shares have fallen, considering I haven’t sold a single share since the first purchase of MARA shares in 2021.

Marathon Digital Business Update

In Marathon’s latest November 2022 update, the company produced 472 BTC and increased its total Bitcoin holdings to 11,757.

As of December 1, Marathon Digital has deployed 69,000 active miners producing 7.0 PE/s. This is a remarkable feat considering the massive number of bankruptcies in the crypto industry.

Marathon not only retained its Bitcoin stash, but also installed 14,000 new miners at its Garden City, Texas site to continue scaling operations.

The company managed to avoid growing too fast and taking on too much debt to avoid an unfortunate bankruptcy situation. However, that is exactly what happened to Core Scientific and caused them to file for Chapter 11 bankruptcy.

The bankruptcy of Core Scientific makes Marathon Digital the undisputed leader

One of Marathon Digital’s competitors, Core Scientific, has filed for Chapter 11 bankruptcy due to its inability to pay its debts. Core Scientific has used a dual mining strategy of self-hosted and third-party miners to become the largest Bitcoin mining company in North America.

Unfortunately, the company took on too much debt and liability and was forced to liquidate its entire Bitcoin stash to cover its electricity and mining costs.

BlackRock bailed out Core Scientific with a $17 million loan, but that won’t fix Core Scientific’s unprofitable business model. On the other hand, Marathon Digital is focused on slow and steady growth while keeping 100% of its mined Bitcoins as BTC reserves.

This shows that Marathon Digital is focused on the long term and understands that Bitcoin’s true value does not depend on current market prices.

While many crypto haters talk about the current bear market, I want to highlight a key inflection point in crypto markets surrounding Bitcoin’s next halving cycle in 2024.

Bitcoin may rebound after hitting block #770,000

In one of my previous Bitcoin articles here on Seeking Alpha, I mentioned that Bitcoin will enter the 3rd stage of its current halving cycle in January 2023. This is when Bitcoin historically has bottomed out and started pumping higher until the next halving cycle.

Bitcoin Halving Cycle (Cointelegraph.com)

The Bitcoin halving cycle halves the amount of minable Bitcoin every 4 years to make it more valuable and rarer.

If history repeats itself, the price of Bitcoin is expected to bottom out in January 2023 and start rising throughout the year.

Crypto mining stocks such as MARA trade alongside Bitcoin prices, so now might be a good time to buy MARA stocks when no one else wants them.

Risk factors

Marathon Digital has a ton of risk factors that could force the company to liquidate its Bitcoin stash or file for bankruptcy if the crypto winter continues far into the future.

My biggest fear is that Bitcoin will not follow the historic 3rd stage of its current halving cycle and continue to decline in price. Marathon Digital must continue to spend money on electricity and mining fees to keep the company afloat.

The company only had $61.7 million in cash as of Nov. 31, 2022, and I wonder if Marathon Digital will have to raise more money through a dilutive stock offering or borrow more money to stay in business.

Marathon Digital’s debt is around $780 and the company is completely over-leveraged in my opinion. He maintains a frightening debt ratio that could cause future problems for the company. If Marathon Digital starts selling its Bitcoin, MARA shares will likely drop and head towards $1 in the near term.

A prolonged crypto bear market in 2023 could drive MARA’s stock even lower and that would really create a lot of unrealized losses for Marathon Digital’s shareholders.

What’s next for MARA Stock?

I haven’t sold any MARA shares and will continue to add to my position when there is fear in the markets.

MARA shares are trading at an attractive P/S ratio of around 2, which is well below its price/sales ratio since the last crypto bull run.

Data by YCharts

From a fundamental standpoint, I think it’s a good time to buy as many stocks as possible while others are scared. Marathon is still holding on to all of its BTC and should survive the crypto winter to reap the benefits as the next Bitcoin halving approaches.

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