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Marathon Digital (NASDAQ: MARA) up 23% - Of course, it’s leveraged to BTC price

The stock price of any miner, of anything, is leverage to the price of the thing being mined

Update : 24 Oct 2023, 11:32 AM

Marathon Digital (NASDAQ: MARA) stock is up 23%. This should not surprise given that Bitcoin (BTC) is up 12% over roughly the same period. Note that this isn’t exactly the same timespan as BTC trades 24/7 and stocks don’t. But still, we see that move in the underlying we should expect that move in the miner. The basic economics of the situation insist that this is what will happen.

As we’ve said before about Marathon Digital: “Marathon Digital (NASDAQ: MARA) stock is down 15% or so. MARA stock is down because Bitcoin, BTC, is down. That’s just how mining works, the miner is geared to the price of what is being mined. This is true of physical mining just as it is of crypto mining. The price of lithium, or BTC, Litecoin, is whatever it is. The production of the one mine is much the same as that of any other, there are many miners of all of them. Miners are, therefore, price takers - they get simply the market price for their production. If that changes then so do their revenues - simple enough. But their costs - in crypto, their energy costs more than anything - don’t change in line with the market price. Thus changes in BTC feed directly through to the bottom line of Bitcoin miners. Great on the upside, not so much on the down.

“Marathon Digital is a bitcoin miner, the bitcoin price is down, so therefore so are MARA revenues and as costs haven’t declined in line then so too are likely gross margins and then net earnings. This is amplified by Marathon having a substantial stock of BTC that it has mined - that asset has also therefore decline in value. The balance sheet takes a hit as well as the P&L.”

Marathon Digital stock price from Google Finance

Clearly, all we’ve said about up and down above in that quote needs to be reversed. The BTC price has gone up that 11 to 12%. So the leverage, the gearing, works the other way around. This is just how the economic model works here. The costs to MARA haven’t gone up but the sales price of production has - therefore all the benefit flows through to the bottom line. Further, the capital value of that retained past production has also gone up.

The only other thing to know is that in the short to medium term there is not other determinant of the Marathon Digital stock price. Whither BTC will be whither MARA, with that extra leverage on top.

Roughly the same will be true of Riot Platforms as well.

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