Strategy (MSTR +1.17%) and MARA Holdings (MARA +0.00%) represent two very different ways to invest in Bitcoin (BTC +2.51%), the world's top cryptocurrency. Strategy, the software company formerly known as MicroStrategy, is the world's largest corporate holder of Bitcoin. MARA, once known as Marathon Digital, is the world's largest Bitcoin miner.
But over the past 12 months, Strategy's stock surged more than 370% as MARA's stock dropped nearly 35%. Bitcoin's price rallied nearly 90% during the same period. Let's see why Strategy outperformed MARA by such a wide margin, and if it will remain the stronger long-term investment on Bitcoin's future.
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The key differences between Strategy and MARA Holdings
For many years, Strategy was considered a slow-growth analytics software provider that struggled to keep pace with nimbler cloud-based competitors like Salesforce and Microsoft. But in 2020, it started to hoard Bitcoin.
By Jan. 12 of this year, it had accumulated 450,000 Bitcoins. It had acquired those Bitcoins, which are now worth around $97,000 as of this writing, for an average price of $62,691. That means it paid about $28.2 billion for a stake that is now worth more than $43.5 billion -- or 47% of its enterprise value of $91.6 billion.
Yet Strategy's core software business, which generates all of its revenue, is barely growing. It's trying to revive that segment with more cloud-based subscriptions and generative AI services, but its main function is to generate more cash for its ongoing Bitcoin purchases. It's also constantly taking on more debt and issuing more shares to raise fresh cash to fund its Bitcoin purchases. The bulls believe this strategy will pay off over the long run as Bitcoin's price skyrockets and lifts its valuations.
NASDAQ: MSTR
Key Data Points
MARA was once a tiny patent holding company, but it evolved into a Bitcoin miner by acquiring hundreds of thousands of miners over the past few years. By the end of January, it had an energized hash rate (which measures its mining efficiency) of 53.2 exahash per second (EH/s) and produced an average of 24.2 Bitcoins per day. Its closest competitor, Riot Platforms (RIOT +1.56%), had an average operating hash rate of 29.3 EH/s at the end of January and was pumping out 17.0 Bitcoins each day.
MARA periodically sells its own Bitcoin to raise more cash, but it was still holding 44,893 Bitcoins at the end of December. That stake is currently worth $4.3 billion, or 72% of its enterprise value of $6 billion.
NASDAQ: MARA
Key Data Points
Why Strategy has a key advantage against Marathon
MARA might seem cheaper than Strategy relative to its Bitcoin holdings, but Strategy has a key advantage against the Bitcoin miner. Strategy doesn't consume any power to hoard its Bitcoin -- it merely converts the cash from its software business, debt offerings, and stock offerings into more Bitcoins. So even though it's diluting its existing investors and raising its debt levels, it isn't racking up higher operating expenses.
MARA's powerful miners consume a lot of energy to produce a constant stream of Bitcoins, and those costs will rise with each "halving" (which halves the rewards for mining Bitcoin) every four years. The most recent halving occurred last April. Rising energy costs will also drive up MARA's operating expenses as it becomes even tougher to mine Bitcoin.
MARA has also been issuing more shares to fund its purchases of more miners and the acquisitions of other Bitcoin miners, but it's been diluting its shares a lot more severely than Strategy. Over the past three years, MARA increased its number of outstanding shares by 229%, while Strategy only increased its share count by 129%.
The better buy: Strategy
If you're not bullish on Bitcoin, you shouldn't touch either of these Bitcoin-bound stocks. But if you expect Bitcoin's price to rise over the next few years, Strategy seems like a smarter investment than MARA. Strategy will profit as long as Bitcoin's price keeps climbing, but MARA needs energy costs to decline and for economies of scale to dilute its expenses before it can keep pace with Strategy's stock or Bitcoin's market price.
