In this article, I evaluated two cryptocurrency stocks: Marathon Digital Holdings (MARA) and Coinbase Global (COIN). A closer look suggests neutral stances for both, although a deeper analysis reveals a winner.
Marathon Digital is a cryptocurrency miner. It also 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, Marathon Digital shares are down 27% this year, but are still up 27% in the past year. Coinbase shares are up 8% this year and are up 134% in the past 12 months.
With such a difference in their price performance, a deeper dive is needed to see if that difference is justified. While the two companies serve different parts of the crypto ecosystem, they are both heavily influenced by bitcoin (BTC-USD) prices and other factors.
Marathon Digital
Marathon Digital reported disappointing second-quarter results due to unexpected equipment failures and transmission line maintenance at its Ellendale facility, which caused bitcoin production to fall 30% from last year. While the company says the issues have been addressed, a neutral outlook seems appropriate given the risks inherent in the business.
A key issue for Marathon Digital is profitability. The company suffered losses in the latest quarter due to problems at its Ellendale facility, with a net loss of $199.7 million, compared to a net loss of $9 million in the year-ago quarter.
Marathon is also planning additional downtime at its Granbury location in the near future. It produced just 692 bitcoins last quarter, compared to 1,176 in the year-ago quarter. So while management said in its earnings report that it achieved a record-high installed hash rate of 31.5 exahash per second in Q2, the company simply isn’t achieving the results needed to support stable profitability over the long term.
Therefore, a neutral stance seems appropriate until there are signs of stable profitability.
What is the price target for MARA shares?
Marathon Digital has a Hold consensus rating based on two Buys, four Holds, and one Sell rating assigned over the past three months. At $20.67, the average Marathon Digital price target implies 21.66% upside potential.
View more MARA analyst ratings
Coinbase
On the one hand, Coinbase’s price-to-earnings (P/E) ratio of 35.3x continues to decline as the company shows signs of stabilizing after becoming profitable in fiscal 2023. On the other hand, its higher forward P/E of 47.1x suggests that analysts expect the exchange’s earnings to decline. As a result, they expect a neutral rating at best, especially given the other factors outlined below.
Multiple media outlets are reporting that bitcoin exchange-traded funds (ETFs) ended their eight-day inflow streak on Tuesday with a net outflow of $127 million, the largest single-day withdrawal since August 6. ARK Invest’s bitcoin ETF recorded the largest outflow at $102 million.
Barclays analyst Benjamin Budish also recently raised 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.
Since Coinbase provides custody, trading, and funding for a number of spot Bitcoin and Ethereum ETF issuers, these outflows could have dramatic effects on the 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 profits as assets under management in these funds grow and from trading activity on its spot ETFs. Barclays’ Budish warned, however, that intense competition for trading volumes could weigh on Coinbase’s results.
Additionally, cheap ETFs could reduce Coinbase’s margins, as investors could trade through their traditional brokers or regulated exchanges, reducing Coinbase’s custody base. In turn, the company may have to lower its commissions and spreads to compete effectively.
We already saw signs of declining trading volumes in the second quarter. Coinbase said that revenue in Q2 fell 27% from the previous quarter, while trading volumes fell 28%.
In summary, Coinbase seems 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 forced to buy its shares, potentially boosting the stock price. Given the high risks associated with spot ETFs and the potential to join the S&P, the company gets 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 past three months. At $256.79, the average Coinbase price target implies 36.39% upside potential.
View more COIN analyst ratings
Conclusion: Neutral on MARA and COIN
While Marathon Digital and Coinbase both receive neutral opinions, Coinbase comes out slightly better due to its relatively stable results. However, both stocks appear to be extremely risky, so it’s best to wait and see before making any decisions.
Revelation
