The triumph of Donald Trump is propelling Marathon Digital by nearly 19% higher today, and here's what you should be aware of.
The triumph of Donald Trump is propelling Marathon Digital by nearly 19% higher today, and here's what you should be aware of.
Marathon Digital Holdings (MARA shedding -2.01%) is a significant player in the worldwide Bitcoin (BTC dropping 0.94%) mining scene, an entity I keep a close eye on. This top-notch miner saw a substantial increase of 19% by market close today.
While the crypto sphere has experienced a shift in perspective over the previous 24 hours due to Donald Trump's triumph in the 2024 presidential elections, it's important to explore the reasons behind Marathon Digital's share growth today. The fact that we now have a pro-crypto president in power is certainly positive for the crypto sector as a whole, and Trump's comments about constructing a strategic Bitcoin reserve also strengthens the Bitcoin argument (which, indirectly, supports Marathon Digital).
However, there are two additional factors related to Marathon Digital that investors should pay close attention to right now.
Expectations exceed hype
While the hype around many cryptocurrency projects can sometimes be captivating, it's fundamental valuation that truly matters for companies like Marathon Digital, which operate specifically for Bitcoin mining. As a result, investors closely scrutinize the company's operational metrics, including its Bitcoin mining output.
Following this year's Bitcoin halving (during which mining rewards were reduced by half), Marathon Digital's stock value suffered noticeable setbacks. However, today's 19% surge in Marathon Digital suggests that some investors anticipate that rising Bitcoin prices could somewhat offset the production decrease. Moreover, the company's recent disclosure of its highest post-halving Bitcoin production is beneficial for those expecting both increased Bitcoin prices and enhanced output.
Marathon Digital's management attributed the enhanced output this quarter mainly to an upsurge in its hash rate. The company's estimated hash rate boosted beyond 14%, reaching more than 40 exahashes per second. Higher transaction fees also contributed to the company's superior-than-expected production.
These impressive results, combined with enhanced Bitcoin price expectations, seem to be driving optimistic upgrades by analysts before Marathon Digital's third-quarter earnings report and conference call, scheduled for Nov. 13. Assuming that these revisions are accurate or that the company surpasses these expectations, the persisting Bitcoin momentum could lead to even further price appreciation.
Is it already priced in?
Today's rally reflects a substantial portion of potential future gains. While evaluating the company's potential earnings beat due to its impressive post-halving Bitcoin production levels or forecasting Bitcoin price surges, a case can be made that a significant portion of this positivity is already priced in.
However, historical crypto rallies have shown an uncanny ability to gain momentum independent of traditional market principles. Labeling this rally as overdone, or estimating that the MARA stock could possibly decline from today's closing price due to profit-taking, might be premature. Investors who prefer staying invested in this stock and riding this momentum to what appears to be an upper limit or ceiling are likely to emerge. Nevertheless, I believe it's too early to draw any definitive conclusions.
In my view, Marathon Digital should be approached as a trading vehicle for the Bitcoin mining market. The company's volatile valuation shifts, a result of both internal factors, such as hash rate and overall Bitcoin production, and external factors, such as Bitcoin prices, can yield either substantial gains or losses in a short span of time. Today's boost is welcome, but Marathon Digital is clearly a high-risk stock that demands a solid appetite for volatility.
Investors might be optimistic about Marathon Digital's potential future earnings due to rising Bitcoin prices and enhanced Bitcoin production, as hinted by the recent disclosure of the company's highest post-halving output. This positive sentiment could potentially lead to even higher Bitcoin prices.
Considering today's rally, it's essential to ponder if these future gains are already factored into Marathon Digital's current share price. Historically, crypto rallies have been known to gain momentum beyond traditional market principles, suggesting that the surge might not be entirely overvalued yet.