Shares of cryptocurrency mining company Marathon Digital Holdings (MARA -1.02%) were up 35.9% in November, according to data provided by S&P Global Market Intelligence. The company focuses on mining operations for Bitcoin (BTC 0.24%) specifically. And the price of Bitcoin increased about 10% in November, providing a boost to Marathon Digital.
Marathon Digital also reported its financial results for the third quarter of 2023 on Nov. 8. However, Q3 results only go through the end of September. The company gave a different update on Nov. 3 that provides key metrics all the way through October.
Both the Q3 report and the October update showed the same thing that the market liked: Bitcoin production is way up. Over the past year, the company has aggressively increased the number of mining devices at its disposal, which has led to a sharp increase in its share of the Bitcoin mining reward.
The market loves Marathon Digital's positioning as Bitcoin marches toward its next halving event in the first half of 2024.
Marathon Digital's position
Transactions on the Bitcoin network are processed by independent third parties such as Marathon Digital. These third parties are known as miners and provide computing power measured in terms of hash rate. For their mining services, they're paid in Bitcoin at a current rate of 6.25 bitcoins per block.
According to its Q3 report, Marathon Digital's hash rate is up over 400% in the past year, giving it 4% of the overall mining reward. With this share of the pool, the company mined over 38 bitcoins daily in October.
Of course, increasing its hash rate didn't come free. Marathon Digital took on debt, sold Bitcoins, and diluted investors by issuing new shares in recent years.
The good news is that Marathon Digital holds more Bitcoins than ever with 13,396 as of the end of October. It's also producing more Bitcoins than ever thanks to how many machines it has installed now. And the company did reduce its debt by about $400 million earlier this year.
The outlook for Bitcoin is good
Roughly every four years, Bitcoin's supply is disrupted. New bitcoins are mined at the current rate of 6.25 per block. But in early 2024, the network will have its latest halving event, reducing the payout to 3.125 per block.
In past cycles, this has led to massive spikes in the price of Bitcoin because the balance between supply and demand gets out of whack. If that happens again this cycle, then the value of Marathon Digital's holdings could increase dramatically.
That said, increases in the price of Bitcoin lead to an increase in the difficulty of mining Bitcoin. Current machines get outdated and need costly upgrades. Therefore, while I believe Marathon Digital will enjoy a boom for business in 2024, management will need to make sure it can both reward shareholders and plan for all the upgrades it will need to make once again down the road.
