Marathon Digital ( MARA ) is hurtling toward a further collapse


Marathon Digital (NASDAQ: MARA) reported a net loss of $75 million for the third quarter of 2022. This led to a sequential decline in cash and cash equivalents to $55.3 million from $86.5 million in the prior period. Bitcoin mining company based in Las Vegas it needs the price of the cryptocurrency to start rising quickly, otherwise it will face a continued deterioration of its liquidity position. Gross profit also turned negative, reversing the positive trend established since the second quarter of fiscal 2021.

Data by YCharts

The backdrop of deteriorating yields all occurred in the lead-up to the collapse of FTX (FTT-USD), an event that some bears claim will form the theoretical basis for an extended crypto winter. Things are not looking good for Marathon. During the third quarter, its long-term debt reached a record $781 million, cash burn from operations hit a record $43.4 million, and Bitcoin perception took a sudden and negative turn, with only 8% of Americans positive. Crypto view.

Crypto Winter Extends

Why am I a bear? I believe this crypto winter is unlike any other. 2021 saw record institutional adoption of cryptocurrency on an unprecedented scale. Tesla (TSLA) will buy $1.5 billion in Bitcoin and begin accepting the digital currency as a payment option for its products, more than a dozen cryptocurrency companies have either IPOs, reverse mergers or SPACs listed on the NASDAQ and NYSE, and new cryptocurrency and blockchain-related companies are also on the way to the pandemic. will attract $32.8 billion in VC funding per year. This number will exceed the total of all previous years.

So, with the current declining adoption, Bitcoin’s utility beyond being a speculative store of value and the broader cryptocurrency ecosystem is once again being called into question. NFTs have fallen completely into obscurity, the metaverse has become a meme and is stagnating, and crypto profitability is facing headwinds due to rising counterparty risks. A major advance in 2021 adoption helped Bitcoin prices reach record highs, but has now turned into a bust. This will mean a much longer crypto winter Indeed, Coinbase (COIN) released a report in mid-November; Long Winter Gets Longer, FTX Crash May Extend Crypto Winter Until Late 2023

Marathon’s business model is simple. Blockchain uses special hardware called ASICs to solve extremely complex math problems to verify transactions. The company is then rewarded with new Bitcoins for the energy-intensive efforts.

Marathon Digital Bitcoin mining elements

Digital Marathon

Interestingly, Bitcoin production at its King Mountain Texas mining facility was curtailed in November amid high spot electricity prices, although the company said it was monitoring electricity prices. The company produced 472 bitcoins during the month, which is a 23% decrease compared to October.

With the current Bitcoin price around $17,000, Marathon is not profitable. When the company last reported earnings for the third quarter of fiscal 2022, it reported revenue of $12.7 million, down 75.5% year over year, missing consensus estimates by $6.77 million. 616 bitcoins were mined during the quarter, which is a 51% decrease compared to the previous year. The closing of a mining facility in Montana and an initial delay in the start-up of its facility in Texas were the main drivers this fall. Low Bitcoin prices, high energy prices and reduced production have led to a significant drop in profitability. Gross profit of negative $1.1 million was a decrease from gross profit of $45.8 million in the prior quarter, a change that resulted in total free cash flow of $137.6 million.

How can Marathon survive the losses?

Against $55.3 million in cash and equivalents, how can Marathon afford the losses? Perception is important, and the failure of FTX, the third largest cryptocurrency exchange to fail, adds materially to bitcoin’s difficult situation in the coming year. In principle, the price of Bitcoin is the main consideration for buying the general commodity, and it is difficult to see how institutional investors, other than those with the highest tolerance for risk, will consider investing in the sector at the same level as in 2021. A cap chart that includes FTX Ontario Teachers Pension Plan, SoftBank and Sequoia Capital. The combined losses and subsequent savings from these prestigious financial institutions will likely present an avoidable scenario for other firms considering participating in future cryptocurrency endeavors.

However, while bulls say the situation is still evolving and Bitcoin prices are extremely sensitive to Fed dovishness, the digital commodity and its miners could rally if inflation figures start to fall below expectations in the new year. Bitcoin is also here to stay.

Data by YCharts

Marathon held 11,285 bitcoins as of the end of October, which is worth about $190 million at today’s Bitcoin prices. While that provides a leg up for its balance sheet, Coinbase’s sequential operating cash burn over the next four quarters could be more than $150 million before crypto winter ends. This would see the current cash pile depleted, and Marathon would likely have to begin selling significant amounts of its Bitcoin holdings to fund continued mining operations. In contrast, the stock price will enter a bearish cycle as the company relies on weakened market offers to finance operations. Dilution, cash burn, heavy debt load and an extended crypto winter lie ahead for Marathon’s co-products. avoid.

Source link