Bitcoin‘s (BTC -0.74%) The price hit an all-time high of $67,567 last November. But today it is trading at around $18,000. The world’s leading cryptocurrency lost its luster as inflation, rising interest rates and other macro headwinds diverted investors away from riskier assets.
This drop also devastated many Bitcoin-related stocks. coin base (COIN -3.63%)one of the world’s largest cryptocurrency exchanges, and Marathon digital (MARA -10.60%), one of the market’s leading bitcoin miners, have both lost more than 80% of their value this year. Should Investors Buy One of These Dilapidated Stocks as a Turnaround Game?
Image source: Getty Images.
Two different approaches to the bitcoin market
Coinbase’s cryptocurrency exchange served 8.5 million monthly transaction users (MTUs) in the third quarter of 2022. That was a sharp drop from the peak of 11.2 million MTUs in Q4 2021.
It generates most of its revenue from transaction fees. Institutional investors accounted for 84% of trading volume in the third quarter, while the remaining 16% came from retail investors. It offers access to a wide range of cryptocurrencies, but Bitcoin and ether (ETH -1.68%) accounted for 31% and 33% of the total trading volume in the most recent quarter. The remaining 36% came from other types of crypto assets.
Marathon has a fleet of approximately 69,000 active ASIC miners, but has actually missed its original goal of bringing 133,000 miners online by mid-2022. It generates almost all of its revenue by mining Bitcoin directly. At the end of November, it held 11,757 bitcoins on its balance sheet.
But both companies face similar headwinds
Coinbase and Marathon use the crypto market in different ways but face similar challenges. Soaring cryptocurrency prices initially drove more investors to Coinbase, while high bitcoin prices boosted Marathon’s revenue and the value of his own bitcoin holdings. But both companies have faced sharp declines this year:
|
Pursue |
2021 |
The first nine months of 2022 |
|---|---|---|
|
Coinbase Global Earnings |
$7.36 billion |
$2.57 billion |
|
Growth (YOY) |
544% |
(52%) |
|
Marathon Digital Sales |
$150.5M |
$89.3M |
|
Growth (YOY) |
2,180% |
(1%) |
Data source: company websites. YOY = year by year.
Coinbase suffered a much harder landing than Marathon this year because it relied on investors to actively trade cryptocurrencies. However, Marathon simply brought more and more miners online and mined more Bitcoin — so revenue growth was more closely tied to Bitcoin’s price.
For the full year, analysts expect Coinbase’s revenue to fall 59% and Marathon’s to fall 10%. We can’t put too much faith in these estimates given their peg to the unpredictable crypto market, but high interest rates will likely continue to steer investors away from cryptocurrencies and other riskier assets for the foreseeable future.
But which business is more sustainable?
Coinbase posted a net profit of $3.6 billion in 2021 but posted a net loss of $2.1 billion in the first nine months of 2022. At the end of the third quarter, it still held $5.0 billion in cash and equivalents, but it also shouldered $7.1 billion in three tranches of long-term debt — and the first tranche of $1.4 billion will be in 2026 due. Coinbase won’t go bankrupt anytime soon, but it could still be overwhelmed by its debt by the end of the decade if the crypto market fails to recover.
Marathon posted a net loss of $36 million in 2021, followed by an even larger net loss of $280 million in the first nine months of 2022. Its total debt of $805 million consists primarily of $731 million dollars in convertible debentures (at a 1% interest rate and due in 2026) and a $50 million term loan. Marathon held just $62 million in cleared cash at the end of the third quarter, but its bitcoin holdings — which it can liquidate for cash — are currently worth about $208 million.
For Marathon, the only way forward is to continually expand its miner fleet, mine more bitcoin, and hope bitcoin prices recover to stabilize its balance sheet. But if Bitcoin’s prices continue to fall, it likely won’t be able to offset the rising costs of maintaining its massive mining operations.
Which stock is the better value?
I wouldn’t buy any of these stocks right now — since it makes more sense to just invest in Bitcoin than in one of these capital-intensive companies — but Coinbase seems like a smarter play for three reasons.
- First, Coinbase’s enterprise value is only double this year’s revenue. Marathon still looks way more expensive at ten times the sales.
- Second, Coinbase isn’t just tied to Bitcoin like Marathon: it’s better diversified across a broader range of investors and cryptocurrencies.
- After all, Coinbase’s business is not dependent on fluctuating miner and energy costs. It just needs to keep its transactions flowing and its investors’ wealth protected — something its disgraced rival FTX has failed to do.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.