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In compiling this Marathon Digital Holdings (NASDAQ:MARA) stock forecast, we have to account for changes in the crypto market, particularly Bitcoin (BTC-USD). The token surged more than 160% last year, boosting MARA, However, when spot Bitcoin ETFs were officially approved by the Securities and Exchange Commission, this changed the dynamics around this company significantly.
While many may have remained bullish on MARA stock for Bitcoin exposure, capital also may be attracted to these ETFs, and have to come from somewhere. With MARA stock being viewed somewhat as a proxy to Bitcoin, that’s clearly not a positive dynamic for this leading crypto miner. With that said, let’s dive into the positives and negatives of this key crypto player right now.
Exclusion of Hut8
Marathon Digital recently secured full control over two new bitcoin mining sites, ending Hut 8’s (NASDAQ:HUT) involvement. The Kearney, Nebraska, and Granbury, Texas sites offer 390MW combined operational capacity. Marathon expects operational and economic benefits from direct management and pushing out a rival.
Marathon reportedly aims to enhance energy management and operational efficiency by removing Hut 8 as a partner on this deal. Now, Marathon will have to pay a termination fee of about $13.6 million. But this decision is all but finalized, with the official $179 million acquisition signed, sealed, and delivered as of January 16.
Sell-Offs on the Horizon
Approximately 22.25% of Marathon Digital’s outstanding float remains shorted at the time of writing. While many MARA bulls acknowledge this, some investors view the metric positively. With high short interest, any positive news could trigger a short squeeze. However, if Bitcoin’s performance weakens, Marathon Digital’s fundamentals may gain attention.
Investors holding this stock may face challenges. Despite heavy net losses and Marathon’s market cap of $3.95 billion, significantly higher than its reported Bitcoin and cash reserves, shares seem overpriced.
While the miner prepares for the halving event, its effectiveness remains uncertain. Continual high losses might lead to a decline in MARA stock, potentially prompting a capital raise and further stock pressure.
Pass on MARA Stock, There Are Better Options
Just as gold mining stocks can outperform spot gold prices in bull markets, crypto mining stocks like Marathon follow a similar trend in crypto bull markets. However, the inverse is also true. In times of trouble, it doesn’t pay to be in highly-levered assets that only gain when the underlying commodity price increases.
Such is the case with Marathon, and it’s the reason I’m bearish on this stock right now. Yes, Bitcoin could soar to all-time highs in a month or two and render this thesis dead. But for now, I’m going to remain on the sidelines and take a cautious approach to this space.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.