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Marathon Digital short interest: MARA stuck in depths of negative sentiment toward bitcoin, crypto market

By Mensholong Lepcha

Edited by Jekaterina Drozdovica

11:44, 22 December 2022

Marathon Digital short interest
Falling bitcoin prices raise Marathon Digital margin call risks. – Photo: Shutterstock; Rafrapress

Short interest in bitcoin miner Marathon Digital (MARA) remained high amid an ongoing crypto winter that has seen bitcoin (BTC) prices fall over 60% in 2022.

A key risk short sellers monitored was Marathon Digital’s bitcoin-backed debt and the possibility of margin calls in the event of further drops in bitcoin prices.

Will Marathon Digital short interest continue to rise? Let’a take a look at the MARA stock price and what’s driving it.

Marahon Digital (MARA) live stock price

What is Marathon Digital?

Marathon Digital Holdings is a bitcoin mining and bitcoin holding company. It is listed on the Nasdaq Stock Exchange under the ticker MARA.

The company was incorporated as Verve Venture in 2010. It renamed itself as American Strategic Minerals Corporation in 2011, and was engaged in the exploration of uranium and vanadium minerals.

Less than a year later, the company discontinued its minerals business to invest in real estate properties in California, US.

In November 2017, the company, then known as Marathon Patent Group, merged with crypto mining firm Global Bit Ventures, following which the company purchased cryptocurrency mining machines and established a data centre in Canada to mine cryptocurrencies.

However, the merger fell through in June 2018. The company continued its crypto mining operations and renamed itself as Marathon Digital Holdings in March 2021.

Marathon Digital said in an annual 2021 filing that the company’s strategy was to hold bitcoin as a long-term investment. The firm also added that it will buy bitcoin from the open market with excess cash and may issue debt or equity to raise capital to purchase bitcoin.

As of 30 November 2022, Marathon Digital held 11,757 bitcoins. The total holding value stood at over $198.7m based on bitcoin’s price of about $16,900 on 20 December 2022. Unrestricted bitcoin holdings stood at about 4,200 BTC.

According to CoinGecko, at the time of writing (20 December) Marathon Digital was the second biggest publicly-listed bitcoin holding company after US-based software firm MicroStrategy.

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Price analysis: MARA falls to lowest since November 2020

Marathon Digital endured a tough time in 2022 as its stock crashed over 87% by mid-December.There were several factors at play that led to an extremely bearish sentiment for the stock. 

Rising interest rates were the predominant force that pushed stock market valuations to multi-year lows in 2022. The tightened liquidity conditions also caused capital outflows from the cryptocurrency markets.

Marathon Digital (MARA) stock price

Adding to that were several bankruptcies and crypto implosions within the digital asset sector that exacerbated the situation and hindered recovery in bitcoin and altcoin prices.

With Marathon solely earning its revenue in bitcoin via block rewards and transaction fees, its total revenue for the third quarter of 2022 slumped 75% year-on-year as bitcoin prices fell over 60% in 2022.

BTC/USD live stock price

The company’s expenses surged as crude oil and natural gas prices rose to multi-decade highs following supply constraints amid Covid restrictions and the Russia-Ukraine war.

Marathon’s bitcoin mining energy and hosting expenses rose 270% year-on-year to about $43m in the first nine months of 2022.

Furthermore, bitcoin mining difficulty scaled to record levels in 2022. In its third quarter result, Marathon reported bitcoin production of 616 coins, compared to 1,253 coins a year ago.

Although the bitcoin network was designed to make mining more difficult with time and competition, sustained high mining difficulty has hurt the bitcoin mining industry.

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On 19 December, MARA stock fell to an over two-year low of $3.69.

Marathon Digital short interest: Bears circle MARA

The difficult business conditions marked by rising interest rates, falling cryptocurrency prices, record bitcoin mining difficulty and elevated energy prices resulted in a rise in MARA short interest in 2022.

Data compiled by MarketBeat showed MARA stock short interest – based on the total number of shares shorted – surged from 19.95 million shares at the end of 2021 to 42.31 million shares by end-November 2022.

MARA short interest data showed the percentage of shares shorted to public float at 36.2% by the end of November 2022, up from about 21% at the start of the year.

Bitcoin miners go bankrupt

Short sellers were circling Marathon Digital after witnessing several bitcoin miners announce bankruptcies and liquidity warnings.

Among the fallen was Compute North, one of the biggest bitcoin miners in the US, which filed for bankruptcy in September 2022.   

Marathon Digital shared a close relationship with Compute North as the former provided bitcoin miners to the latter to maintain and operate. 

Earlier in 2022, Marathon Digital invested $10m in convertible preferred stock of Compute Nortt. It also lent $30m and made $50m operating deposits to Compute North.

Marathon Digital recorded an impairment charge of $39m in its third quarter result and wrote off $8m of the deposit later in a December press release.

Margin calls

A key risk driving Marathon Digital short interest was a bitcoin-collateralised loan agreement with Silvergate Bank in which the company borrowed an initial $100m in July 2022.

In October 2022, the company borrowed an additional $50m from the facility and provided an extra 3,993 bitcoins as collateral. At the time, the total collateral amounted to 7,821 bitcoins.

However, as bitcoin prices slumped in November 2022 following the bankruptcy of FTX exchange, Marathon Digital was required to provide an additional 1,669 bitcoins as collateral to maintain its margin. 

This took Marathon’s total collateral to 9,490 bitcoins and left the company with only 1,950 unrestricted bitcoins, as of 9 November 2022.

The miner became fearful of a further drop in bitcoin prices that could require it to meet margin calls or have its loans liquidated. The firm commented:

“Given the uncertainty around bitcoin prices in the near term, the Company has decided to delay previously announced plans to refinance the RLOC (revolving line of credit) with a term loan during the month of November. This enables the Company to retain the optionality to repay the RLOC borrowings in the near-term versus committing to a two-year term loan borrowing which would carry prepayment penalties.”

Will there be a Marathon Digital short squeeze?

Despite the heightened pessimism over Marathon Digital, a short squeeze can not be ruled out.

An overcrowded short market can be vulnerable to short squeeze in the event of favourable market news, increased long investor interest and WallStreetBets-style orchestrated market moves.

For now, cryptocurrency prices remain the key driver for the MARA stock price. Investors should watch for bankruptcies among crypto firms, which could drag bitcoin prices lower. Other key areas to monitor are crypto regulatory developments and US Federal Reserve (Fed) interest rate hike policy.

Note that while increased or subdued short interest in a stock may provide a potential insight into a company’s performance, it shouldn’t be used as a substitute for your own research. 

Investors and traders are encouraged to perform adequate due diligence on any security they wish to trade in, looking at the latest news, technical and fundamental analysis and a wide range of commentary. Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose. 

FAQs

What is the short interest on Marathon Digital?

MARA short interest data showed the percentage of shares shorted to public float at 36.2% by the end of November 2022, up from about 21% at the start of the year.

Will Marathon Digital squeeze?

An overcrowded short market can be vulnerable to short squeeze in the event of favourable market news, increased long investor interest and WallStreetBets-style orchestrated market moves.

Should I invest in Marathon Digital?

The decision to invest in an asset is yours alone. Investors and traders are encouraged to perform adequate due diligence on any security they wish to trade in. Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose.

Markets in this article

BTC/USD
Bitcoin / USD
67598.00 USD
-180.15 -0.270%
MARA
Marathon Digital Holdings, Inc
24.02 USD
-0.79 -3.200%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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