Marathon Digital (NASDAQ: MARA) is one of the most prominent Bitcoin (CRYPTO: BTC) miners in the world and certainly one that I watch closely. This top-crypto miner rallied nicely today, surging 19% as of market close.
While the overall narrative around crypto has certainly shifted over the past 24 hours thanks to a Donald Trump victory in the 2024 presidential election, there's more to the story when it comes to why shares of Marathon Digital are spiking today. The fact that there is now a pro-crypto president in power is certainly bullish for this sector overall, and Trump's previous comments around building a strategic Bitcoin reserve (over and above the digital tokens that have been confiscated from wrongdoers) help the Bitcoin argument (and by extension, Marathon Digital).
That said, I'm going to dive into two other key factors I think Marathon Digital investors need to closely consider right now.
Hype is great, but fundamentals are better
Unlike many crypto projects which aren't valued on the basis of earnings and cash flows, companies like Marathon Digital that are set up with the expressed purpose of mining Bitcoin are, in fact, subject to fundamental valuation by investors and the overall market. Accordingly, the company's operating metrics, which include Bitcoin-mining production, are watched closely by many in the industry.
Following Bitcoin's halving this year (in which mining rewards were cut in half), Marathon's stock price and valuation notably took a hit. However, today's 19% surge in Marathon Digital indicates some investors are bullish on the idea that rising Bitcoin prices could at least partially offset declines in production. Additionally, the fact that the company just reported its highest Bitcoin production in the post-halving era is bullish for those who expect both rising Bitcoin prices and higher output.
Marathon Digital's management team cited a higher hash rate as the key reason why the company was able to increase its production this past quarter. The company's hash rate reportedly increased more than 14% to better-than 40 exahashes per second, with higher-transaction fees also contributing to the company's stronger-than-expected output.
These strong numbers, as well as improved Bitcoin price exceptions, appear to be driving significant analyst upgrades for Marathon Digital ahead of its upcoming earnings report and conference call for its third-quarter results on Nov. 13. Assuming analysts are correct with these revisions, or the company can even exceed these estimates, any sort of continuation in the momentum in Bitcoin could drive further price appreciation.
Is this all priced in?
Today's move has certainly priced in a great deal of future potential gains. Whether talking about the company's upcoming potential-earnings beat based on its recent post-halving record-Bitcoin production, or expectations of future Bitcoin price gains, today's move likely prices a lot of this positivity in.
However, previous crypto rallies have taken on a life of their own. Calling this rally overdone, or suggesting that MARA stock will likely trend lower from today's closing price due to profit-taking may be premature. There is certainly going to be a group of investors who want to stick with this name and ride this momentum higher or to a point where it looks like a ceiling is being hit. Again, I think it's too early to make a determination on this front.
In my view, Marathon Digital is one of those volatile stocks that's best considered a trading vehicle for the Bitcoin mining market. The company's wild valuation swings, based on a combination of factors the company can control (like hash rate and overall Bitcoin production) and factors outside its control (namely, Bitcoin prices) can lead to big gains or losses in short time frames. Today's move is nice, but this is clearly a stock that requires a hearty stomach for volatility.
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Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
