Bitcoin or Marathon Digital: Which is a better pick?

athon Digital Holdings Inc. (NASDAQ:MARA), a prominent player in the Bitcoin mining space, has notably underperformed Bitcoin since the start of 2022. Despite Bitcoin’s strong rally that has seen it surpass its previous all-time high made in November 2021, Marathon Digital’s stock has struggled. This divergence raises important questions about the company’s operational efficiency and strategic direction.

MARA chart by TradingView

In the first quarter of 2024, the company reported a substantial y-o-y increase in earnings per share (EPS) of $1.26, significantly surpassing analyst expectations by $1.05. Revenue also saw a dramatic year-over-year increase of 223%, reaching $165.2 million. However, this revenue fell short of market expectations by $15.52 million.

Accounting shenanigans

Behind these impressive numbers lies a more nuanced story. While the company reported an operating income of $369.7 million, much of this was attributed to accounting adjustments rather than operational prowess. Adjusting for these factors, Marathon Digital’s operating income actually dipped into negative territory, raising concerns about its profitability and sustainability.

During Q1, the company achieved a 142% increase in its energized hash rate, reaching 27.8 exahashes per second (EH/s) by the end of Q1 2024, and aims to double this figure to 50 EH/s by the end of the year. Despite its operational achievements, Marathon Digital has struggled to maintain profitability. The company’s reliance on the rising value of Bitcoin to boost its financial statements, coupled with substantial shareholder dilution, raises concerns about its long-term viability.

Furthermore, the company’s reliance on transaction fees as a primary revenue source has become increasingly precarious. With competition in the Bitcoin mining space intensifying and rewards diminishing, Marathon Digital faces significant headwinds in maintaining its profitability. Despite efforts to diversify its revenue streams through initiatives like Slipstream, which allows for direct transaction processing, the company’s fundamentals remain shaky.

Given these factors, Marathon Digital’s stock has lagged behind Bitcoin since the start of 2022. Investors seeking exposure to the cryptocurrency market are finding direct investment in Bitcoin through newly available spot ETFs more appealing than holding MARA stock, which has shown higher volatility and lower returns. With these considerations in mind, it becomes crucial to analyze Marathon Digital’s charts to understand its future price movements better.

Stock likely to lag amid bearish trend

After falling near the $3 level by the end of 2022, Marathon Digital’s stock has seen a strong recovery that saw it making a high above $30 earlier this year. However, after making a high at $34.09, the stock entered a bearish phase and fell more than 50% in the next two months finding support near 61.8% from its December 2022 lows to its February 2024 high. Although the stock has bounced back since then, it is still under the control of bears and would likely underperform BTCUSD in the short term.

MARA chart by TradingView

Traders who continue to be bearish on the stock can short it above $20 while keeping a stop loss a few cents above the recent swing high at $25.28. If it starts catering again it can find support near $14.18 and failing that can fall all the way down to its October lows below $10 where profits can be booked.

Investors and traders who are bullish on the stock should start with a small position currently, they can add to their position if the stock starts trading above $25.30. They must keep a stop loss at $14.15 as falling below that level can result in a drastic move. If the stock surpasses $25.30, it can climb all the way up above the recent high of $34.09 where profits can be booked.

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