2024 was quite the year for Bitcoin, with the popular cryptocurrency topping the $100,000 mark for the first time in history. Spot ETFs were approved at the beginning of the year, quickly seeing billions in inflows, while investors look ahead to more favorable crypto policy come 2025.
While it was a banner year for BTC, miners have not fared as well, with some of the leading miners such as Marathon Digital and Riot Platforms recording (20%) to (30%) declines for the year. Revenue growth has faced some headwinds this year while losses have widened so far post-halving. Marathon has been significantly boosting its BTC holdings with open-market purchases of more than 22,000 BTC in 2024, while Riot began purchases in December. Though 2025 looks set for growth, profitability remains challenged.
As stated under the Technicals section below, Riot and Marathon Digital would be strictly momentum plays. These are not quality positions based on fundamentals, rather they lean into the extremely high risk/high reward category due to being leveraged Bitcoin bets. You can think of these stocks along the lines of MicroStrategy, a stock that is reaping outsized rewards from Bitcoin’s price movements due to accumulating large amounts of Bitcoin on the company’s balance sheet. To illustrate why leveraged Bitcoin bets can often be highly rewarded, Marathon noted in the Q3 earnings call that “a $10,000 change in BTC price will result in over a $200 million impact in our earnings purely due to our large HODL position.”
The profile from last quarter on both stocks is deep in the red at (-51%) gross margin and (-101.6%) operating margin for Marathon, while Riot has a +14% gross margin yet (-121%) operating margin. Losses into the triple digits helps to illustrate just how risky these stocks are.
It’s also important to consider that Marathon and Riot are accumulating Bitcoin instead of mining Bitcoin due to increased network difficulty from mining Bitcoin following the last halving in April of 2024, and also headwinds to profitability from depreciation and amortization (D&A).
Global Hash Rate Surges Alongside BTC
Global hash rate has surged alongside Bitcoin this year, ending the year 60% higher, at approximately 800 exahash per second (EH/s). While global hash rate increased fairly steadily throughout the year, it accelerated in Q4, from 640 EH/s to 800 EH/s, as BTC rose from $60,000 to over $100,000. Global hash rate is now ~5x higher than at Bitcoin’s prior peak in 2021.
Source: Blockchain.com
This increase in global hash rate, or higher network difficulty, means more computational power and thus electricity is required to mine the same amount of blocks. Riot said that Bitcoin’s rise led to “unprecedent expansion in mining operations and resulting in a doubling in the size of provisioned hash calculation services on the network.” More recently, the mining industry “recently experienced an increase in transaction fees on the Bitcoin network, as well as an increase in overall demand for Bitcoin.”
What this means is that Bitcoin mining efforts have actually led to decreased BTC production despite both Marathon and Riot significantly expanding operations and increasing hash rates. Riot said that despite increasing its hash rate ~159% YoY to 28.2 EH/s, April’s halving event and increased network difficulty from higher global hash rate resulted in BTC mining production declining -34% YoY in Q3. Similarly, Marathon’s BTC production declined -41% YoY to 2,070 BTC despite a YoY increase in blocks won.
These trends are expected to persist as BTC pricing increases, with Riot pointing out that rising market prices draw more miners and hash rate onto the network, increasing difficulty and forcing existing operators to continually increase hash rates to maintain chances of earning mining rewards.
Strong Q4 Hash Rates
It’s important to note that Riot and Marathon do not operate at 100% energization (or full utilization) of their BTC mining fleets on a 24/7 basis.
However, average operational hash rates are lower, due to some mining systems being offline, downtime, or other fluctuations in performance.
- Marathon’s average operational hash rate in Q3 was 28.8 EH/s, or ~78% of its energized hash rate of 36.6 EH/s at quarter end.
- Riot’s average operating hash rate was 16.7 EH/s in Q3, or ~59% of its 28.2 EH/s deployed hash rate.
- Marathon kept a larger percentage of its fleet online during the quarter. As a percentage of global hash rate, Marathon contributed ~4.6% and Riot ~2.7% in Q3.
Both miners have set targets for energized/deployed hash rates for 2024 — 50 EH/s for Marathon and 35 EH/s for Riot. Marathon Digital surpassed its energized hash rate target, with energized hash rate up 15% MoM to 46.1 EH/s in November and another 15% MoM to 53.2 EH/s in December. Riot’s deployed hash rate in November rose 5% MoM to 30.8 EH/s, also putting it on track to reach its year-end target.
Accumulating BTC with MARA’s Holdings at 67% of Market Cap
Marathon shifted its treasury policy stance in Q2 2024 to adopt a “full HODL approach”, and said that it will make open-market purchases to take advantage of dips in BTC. Marathon had sold off portions of its mined BTC to cover operational expenses beginning in 2022, but now will be focused on retaining mined coins and building out its BTC assets due to management’s confidence in the long-term value of BTC moving forward.
Marathon has quickly put this strategy in play, with its BTC holdings surging 68% QoQ and 143% since Q2 to 44,893 BTC. Marathon’s BTC holdings are worth $4.4 billion at the current price of $98,000 – another way to see this is that 67% of Marathon’s current $6.6 billion market cap is solely BTC.
The increase in BTC holdings has been driven by large scale purchases over the past two months – Marathon mined 907 BTC in November but purchased an addition 6,474 BTC on the open market. December mining rewards were 890 BTC, with purchases of 9,044 BTC.
Marathon is augmenting its lower production post-halving: Marathon mined 4,584 BTC in Q3 and Q4 (down -41% YoY), but purchased nearly 22,000 BTC in the two quarters. The purchases are coming at a higher cost than mining, with Marathon paying more than $87,000 on average for its 22,065 BTC purchased in 2024 while average mining costs were $42,805 in Q3.
Similar to MicroStrategy, Marathon tapped into the low/zero-coupon convertible market to finance these major BTC purchases:
- Purchased 4,144 BTC for $249 million from the August 2024 issuance of $300 million in 2.125% convertible notes due 2031
- Completed Nov 2024 issuance of $1 billion in 0% convertible notes due 2030 (oversubscribed and upsized from $700M), to be primarily used for BTC purchases and repayment of 2026 notes (~$331M principal remaining)
- Completed Dec 2024 issuance of $850 million in 0% convertible notes due 2031 (oversubscribed and upsized from $700M), to be primarily used for BTC purchases and 2026 note repayment
Additionally, Riot began large-scale purchases of BTC in December. Riot’s BTC holdings totaled 11,425 at the end of November, up ~5% MoM from 10,928 in October. Riot purchased 5,784 BTC in December (utilizing the proceeds from its $594.4 million convertible note issuance), taking its total holdings to 17,722 BTC at the end of 2024, a 141% YoY increase.
Marathon: Revenue Expected to Rebound in Q4
Though its average operational hash rate was much higher than Riot’s, Marathon was also adversely impacted by rising network difficulty, with mined BTC declining significantly YoY and revenues declining from a peak in Q1.
Q3 revenue was $131.6 million, rising nearly 35% YoY but declining -10% QoQ. This was also more than 20% lower than the $165.2 million in revenue generated in Q1, despite BTC rising more than 40%, as mined BTC slumped post-halving and network difficulty rose.
Mined BTC did rise more than 21% sequentially in Q4 to 2,514, but this still represented a -41% YoY decline. Quarterly revenue is expected to rebound significantly in Q4. Analysts currently expect Marathon to report $175 million in revenue, up 11% YoY and 33% QoQ.
Management is expecting to see some tailwinds to the bottom line from BTC as well as cost improvements, noting in Q3 that “a $10,000 change in BTC price will result in over a $200 million impact in our earnings purely due to our large HODL position.” BTC’s average closing price in Q4 was ~$83,400, up more than $21,000 QoQ, potentially proving up to a $400 million impact to earnings; yet the scale of this is likely to be lower given that a majority of the BTC purchases were made later in the quarter.
Marathon’s cost of revenue per petahash per day improved 18% YoY in Q3, from $45.2 to $37.1. However, this was more than offset by depreciation and amortization costs, which were up substantially, leading to widening losses from expanding the mining fleet at +89% YoY in Q3 to $101.1 million; and up +146% YTD to $266.9 million.
Net loss was ($124.8 million) in Q3, following on a ($199 million) loss in Q2. Current plans to significantly expand owned capacity from ~4% of 619 MW capacity at the end of 2023 to ~65% of 1,500 MW capacity should help reduce cost of revenues due to a higher share of near-zero cost of energy in these operations – this can further aid improvements in cost per petahash, helping mitigate growth in mining costs. With that said, headwinds from D&A and increased network difficulty remain with Marathon expected to report only one quarter of profitability in 2025.
Riot: Revenue Projected to Surge in Q4
Riot’s quarterly BTC production has fluctuated, falling from a peak of 2,115 in Q1 2023 to a low of 844 in Q2. Production ticked higher in Q3 to 1,104 BTC, flat YoY. Contrary to Marathon, Riot’s revenue reached a new high in Q3 at $84.7 million, rising over 21% QoQ as BTC revenue rose nearly 21% QoQ and engineering revenue increased more than 31% QoQ.
Riding BTC’s tailwinds, revenue is estimated to surge in Q4, rising almost 57% QoQ and 69% YoY to $132.8 million. Riot has rather significantly increased its average operational hash rates this quarter, from 16.7 EH/s in Q3 to 27.4 EH/s by the end of December; Q4’s average operational hash rate is likely to be ~25 EH/s, or a nearly 50% QoQ increase.
Mined BTC rebounded 40% QoQ to 1,516 BTC in Q4, even as Riot fell short of its deployed hash rate targets for the quarter (and year). Riot had initially targeted 36.3 EH/s for 2024, but then decreased that deployed hash rate target to 34.9 EH/s. December’s release showed that Riot ended 2024 with just 31.5 EH/s deployed, 10% short of its targets, with the company saying it took a more measured approach to expanding its fleet to “ensure power quality.” Fleet efficiency is also short of targets, at 21.9 J/TH, short of its target for 21.4 J/TH.
As a result of this delayed hash rate expansion, Riot decreased its deployed hash rate targets through 2025. For Q1, Riot now sees deployed hash rate at 34.5 EH/s, one quarter behind schedule, before ramping to 46.3 EH/s by the end of the year, down from 46.7 EH/s. Riot is aiming to get largely back on track with its prior targets despite the Q4 shortfall by the second half of 2025.
Similar to Marathon, Riot’s net losses widened post-halving, falling from $212 million income in Q1 to ($154.4 million) in Q3. Aiding this two-quarter acceleration in net loss for Riot was increased depreciation (rising more than 62% QoQ to $60 million), increasing SBC (up from 26% of revenue in Q3 2023 to 36% in Q3 2024), less power curtailment credits, and shrinking BTC gross margin (down -50% YoY). Riot is unlikely to reach profitability in 2025 due to headwinds to BTC gross margin from increased network difficulty, less power credits, and a heightened cost profile in part due to heightened SBC.
Long-Term Expansion Sets Stage for Growth in 2025
Both Marathon and Riot are working to significantly expand capacity and mining fleets, as they both need to continually expand fleets as hash rate rises in order to maintain BTC production at current levels.
Marathon is expecting to bring its recently added 372 MW of owned and operating capacity in Ohio fully online and energized in 2025, while Riot’s expansion efforts are more weighted in 2026 and beyond; Riot is expecting to bring some additional capacity in Kentucky online in late 2025, though much of the expansion in Corsicana is expected to begin in Q4 2025 and the majority in 2026.
Marathon also outlined potentialities from “symbiotic relationships” with data center developers for AI and bitcoin mining, saying that it is working to become a key player in both BTC mining and AI/HPC. To that extent, Marathon welcomed two new board members with expertise in AI and data centers this year. Riot said in Q3 that there is “notable sense of urgency for power access in 2025 with AI HPC companies willing to pay a premium for timely access at attractive sites.” Riot’s management said they are in some preliminary discussions with AI HPC firms over some capacity, and will see if there are deals to monetize capacity at a better rate than mining.
Other miners have struck deals to offer capacity to AI HPC firms, most notably Core Scientific’s expanded relationship with Nvidia-backed GPU renter CoreWeave. Core Scientific will be providing 500 MW capacity to CoreWeave in an agreement worth $8.7 billion in cumulative revenue to Core Scientific over the next 12 years. Analysts note that Core Scientific is expected to generate $1 million in incremental cash flow per 1 MW contracted at a 75-80% margin, far higher than BTC mining, demonstrating that providing capacity to AI HPC can provide higher margin, cash flow positive deals.
While these opportunities have yet to bear fruit for Marathon and Riot as they have for other miners, the two are both expected to see significant revenue growth in 2025. Marathon is projected to see nearly 61% YoY revenue growth to $1 billion, whereas Riot is expected to see revenue surge nearly 113% YoY to $782 million. This trajectory ultimately will be determined by BTC’s price movement, as a prolonged correction could negatively impact revenues, while a surge far above $100,000 could aid revenue growth but impact mining rewards from higher network difficulty.
Q4 is expected to kick off growth for 2025, with both companies expected to see revenue accelerate to the triple digit range by Q3.
Marathon’s quarterly revenue growth is expected to accelerate from 12% in Q4 to 107% in Q3 2025. Riot’s revenue growth is expected to accelerate from 69% in Q4 to 151% in Q2 2025 before decelerating to 113% in Q3 2025. However, profitability is expected to be a rare sight in 2025 – consensus estimates point to net losses each quarter for Riot, and only one quarter (Q1) of profitability at a thin margin for Marathon.
Technical Analysis
By Knox Ridley
We have been talking about both RIOT and MARA on several recent webinars, so hopefully our entry into these two stocks is not a surprise to our members. We view these positions as leveraged Bitcoin plays, and not as buy and hold positions. When Bitcoin is in a bull market, they tend to do quite well; however, the risk to their unique business models is elevated when Bitcoin enters a bear market.
Regarding MARA, it is in line with our outlook on Bitcoin, which is that we should see one more large swing higher. If we zoom into the current pattern, we have a messy 5 wave pattern off the September 2024 low. This is being followed by a 3 wave retrace that has either ended or should have only one more slight low. If accurate, this is waves 1 and 2 in a larger 5 wave pattern that is targeting the $53 – $72 region.
The volume activity is also encouraging. Note how volume is expanding in the uptrend (wave 1) and decelerating in the downtrend (wave 2). Furthermore, the 1st daily volume bars that were above the 10-day average happened on further buying.
MARA has room for further weakness, but it has to hold $13.70 for the above setup to remain valid. If we can hold that level and then first breakout above the downtrend line, and then breakout above $30.40, we will have full confirmation that this scenario is in play.
RIOT is in a similar posture; however, it is further from invalidating its setup. For this reason, technically, it is a sounder setup. Like MARA, RIOT appears to be in a 2nd wave with a similar bullish volume pattern.
As long as any further weakness holds over $7, we will be looking for a breakout over $16 for full confirmation of the below scenario.
Conclusion:
Being crypto-related, these stocks have very little fundamental value to offer. These are high risk/high reward momentum stocks that the I/O Fund will attempt to ride up; but be aware, we will be closing them quickly on any weakness by following our stops, or when we hit predefined price targets with trade alerts sent to our Advanced Members.
Damien Robbins and Knox Ridley, I/O Fund Analysts, contributed to this analysis
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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