In this article, I evaluated two cryptocurrency stocks: Marathon Digital Holdings (MARA) and Coinbase Global (COIN). A closer look suggests neutral views for both, although a winner does emerge upon deeper analysis.
Marathon Digital is a cryptocurrency miner. In addition, it focuses on the blockchain ecosystem and the creation of digital assets. Meanwhile, Coinbase is a cryptocurrency exchange that provides end-to-end financial infrastructure and technology for the crypto economy.
In terms of price performance, shares of Marathon Digital have tumbled 27% year-to-date but are still up 27% over the last year, while Coinbase stock has gained 8% year-to-date and has soared 134% over the last 12 months.
With such a difference in their price performances, a deeper dive is necessary to see whether that difference is warranted. While the two companies serve different parts of the crypto ecosystem, they both are greatly affected by bitcoin (BTC-USD) prices and other factors.
Marathon Digital
Marathon Digital reported disappointing second-quarter results on the back of unexpected equipment failures and transmission line maintenance at its Ellendale facility, which slashed bitcoin production by 30% year-over-year. While the company says the issues have been remedied, a neutral view seems appropriate due to the riskiness of the business.
A key issue for Marathon Digital is profitability. The company swung to a loss in the latest quarter due to the issues at its Ellendale facility, posting a net loss of $199.7 million, versus the net loss of $9 million in the year-ago quarter.
Further, Marathon is planning for additional downtime at its Granbury site in the near future. It produced only 692 bitcoins during the latest quarter, versus 1,176 in the year-ago quarter. Thus, even though management said in their earnings release that they reached a record-high installed hash rate of 31.5 exahash per second in the second quarter, the company is just not getting the results needed to support stable profitability over the long term.
As a result, a neutral view looks appropriate until there are signs of stable profitability.
What Is the Price Target for MARA Stock?
Marathon Digital has a Hold consensus rating based on two Buys, four Holds, and one Sell rating assigned over the last three months. At $20.67, the average Marathon Digital stock price target implies upside potential of 21.66%.
Coinbase
On one hand, Coinbase’s price-to-earnings (P/E) ratio of 35.3x continues to decline as it shows signs of stabilization after becoming profitable in fiscal 2023. On the other hand, the higher forward P/E of 47.1x suggests analysts expect the exchange’s earnings to fall, calling for a neutral rating at best, especially considering the other factors outlined below.
Multiple outlets are reporting that bitcoin exchange-traded funds (ETFs) ended their eight-day inflow streak on Tuesday with $127 million in net outflows, the largest single-day withdrawal since August 6. ARK Invest’s bitcoin ETF notched the largest outflow at $102 million.
Also, Barclays analyst Benjamin Budish recently expressed concerns about net outflows from spot Ethereum ETFs. Further, JPMorgan reported this week that spot Ethereum ETFs have recorded net outflows of $500 million since their launch on July 23.
Given that Coinbase provides custody, trading, and financing for some spot bitcoin and Ethereum ETF issuers, these outflows can have dramatic impacts on its top and bottom lines. In fact, Coinbase is the custodian and primary broker for eight spot Bitcoin ETFs and six spot Ethereum ETFs.
As a result, it notches gains when assets under management in these funds grow and from trading activity on the spot ETFs. However, Barclays’ Budish warned that intense competition for trading volumes could weigh on Coinbase’s results.
Additionally, low-cost ETFs could end up slashing Coinbase’s margins because investors can trade through their traditional brokers or regulated stock exchanges, reducing Coinbase’s custodial base. In turn, the company might have to slash its commissions and spreads to compete effectively.
In the second quarter, we already saw signs of plunging trading volumes. Coinbase said its revenue tumbled 27% quarter over quarter in Q2 as trading volumes fell 28%.
In summary, Coinbase appears too risky at the moment. However, if it were to join the S&P 500 (SPX), as one analyst suggested, passively managed funds would be compelled to purchase its shares, potentially boosting the stock. Given the high risks tied to spot ETFs and the possibility of joining the S&P, the company receives a Neutral rating.
What Is the Price Target for COIN Stock?
Coinbase has a Moderate Buy consensus rating based on seven Buys, seven Holds, and two Sell ratings assigned over the last three months. At $256.79, the average Coinbase stock price target implies upside potential of 36.39%.
Conclusion: Neutral on MARA and COIN
While Marathon Digital and Coinbase both receive neutral views, Coinbase comes out slightly ahead due to its relatively stable results. However, both stocks look extremely risky, so it’s best to wait and see before making any decisions.
