MicroStrategy (MSTR +11.80%) and Marathon Digital (MARA +0.52%) represent two different ways to invest in Bitcoin (BTC 2.26%). MicroStrategy was once a slow-growth enterprise software company, but it went all-in on Bitcoin by buying the world's top cryptocurrency during the past four years. Marathon was originally a tiny patent-holding company, but it bought a host of Bitcoin miners during the past six years to become the largest mining company in the world.
During the past 12 months, Bitcoin's price rose about 145% as interest rates declined. MicroStrategy's stock soared nearly 540% during that period, but Marathon's stock advanced less than 120%.
Image source: Getty Images.
Both stocks benefited from Bitcoin's recovery, but investors seemed more impressed by MicroStrategy's simple strategy of accumulating it than Marathon's capital-intensive approach of mining it. So, will MicroStrategy remain a better play on the Bitcoin market than Marathon Digital?
MicroStrategy's strategy is bold but unbalanced
MicroStrategy's core business of selling data mining and analytics software stalled out during the past decade. From 2013 to 2023, its annual revenue declined from $576 million to $496 million as it struggled to keep up with faster-growing cloud-based software companies like Microsoft and Salesforce.
NASDAQ: MSTR
Key Data Points
So, in 2020, MicroStrategy Chief Executive Officer Michael Saylor directed the company to start buying Bitcoin with an initial purchase of $250 million. Saylor stepped down as CEO in 2022 but stayed on as its executive chairman, and the company had accumulated 226,500 bitcoins -- currently worth about $14.2 billion -- by the end of its latest quarter. It only paid an average price of $36,821 per Bitcoin for that huge investment.
MicroStrategy's Bitcoin holdings now account for 30% of its enterprise value of $46.9 billion. Earlier this year, Saylor predicted the cryptocurrency's price would hit $13 million over the next 21 years. That rally would boost the value of its current Bitcoin holdings to $2.94 trillion. Assuming MicroStrategy continues to accumulate the digital coin during the next two decades, it could transform itself into a Bitcoin holding company as its legacy software business fades away.
MicroStrategy is trying to stabilize its software business by expanding its cloud-based subscription services, but its main purpose is to simply generate more cash and take on more debt for its Bitcoin purchases. It has also more than doubled its share count during the past four years with stock offerings to buy more crypto. Its total liabilities have more than quadrupled since the end of 2020, and analysts expect its core business to be unprofitable during the next few years.
The bulls believe MicroStrategy's big and unbalanced bet on Bitcoin will pay off, but the bears think it could collapse under the weight of its own debt and dilution if Bitcoin crashes. Therefore, MicroStrategy is a double-edged sword: It could certainly generate bigger gains than Bitcoin, but it could also endure steeper losses if its price plummets.
Marathon's mining strategy is losing its luster
Marathon Digital ordered its first Bitcoin miners in 2018, and it currently operates a fleet of more than 245,000 active mining machines. Its energized hash rate, which gauges its mining efficiency, rose more than 10-fold from 3.5 exahashes per second (EH/s) at the end of 2021 to 36.9 EH/s at the end of September 2024. Its closest competitor, Riot Platforms (RIOT +7.09%), had an operating hash rate of 19.5 EH/s at the end of September.
NASDAQ: MARA
Key Data Points
Marathon sells its own Bitcoin holdings to fund its operations, but it still held 26,842 bitcoins, worth about $1.7 billion, at the end of September. That's 35% of its enterprise value of $4.83 billion. Riot held only 10,427 bitcoins at the end of September.
Marathon might seem undervalued relative to the bitcoins on its balance sheet, but it operates a more capital-intensive business than MicroStrategy. It costs a lot of money to power its miners, and rising energy prices and the recent halving in April -- which cut the rewards for mining the crypto in half -- have made it even more expensive to mine Bitcoin. That difficulty curve will become even steeper when the next halving occurs in 2028.
Marathon is trying to offset that pressure by acquiring other smaller U.S. miners and launching a new joint venture in Abu Dhabi. The bulls expect economies of scale to kick in and offset its soaring expenses, but the bears believe it's a losing battle.
It ended its latest quarter with a seemingly low debt-to-equity ratio of 0.1, but that's mainly because it already increased its number of shares outstanding by 3,650% during the past five years to fund the expansion of its mining fleet. Analysts also expect it to rack up net losses for at least the next two years as it tries to scale up its business.
The better buy: MicroStrategy
MicroStrategy's big bet on Bitcoin is risky, but it's still more sustainable than Marathon's messy mining business. MicroStrategy's value will soar if the digital coin rallies, but Marathon needs to overcome its rising expenses and more halvings to stay ahead of Bitcoin. That's why I would still prefer to invest in the former than the latter.
