The Crypto Comeback

Hey GRIT Alpha 👋

Don’t look now, but crypto has been on an absolute tear.

Call it interest rate cuts, call it final financialization through ETFs, call it the halving, call it whatever you want. 👀

You can’t deny the renewed excitement plus performance in cryptocurrencies over 2023 and into the new year.

While we still hold our breath waiting for the SEC to give the go-ahead for the first “physically (digitally)” backed ETF approval, crypto proxies are already mooning.

Several companies already available on public exchanges serve as proxies for owning cryptocurrencies because these companies hold coins on balance sheet, mine, or a combination of the two.

In the US, two companies stand out: Microstrategy (MSTR) and Marathon Digital (MARA).

The performance since the beginning of 2023 has been impressive. Here we have Bitcoin (+167%), MSTR (+359%), and MARA (+647%)!!

One of these charts is not like the other…

Marathon has trounced the performance of both the underlying bitcoin price performance and of MicroStrategy; before the recent pullback, it was up 800%.

Microstrategy and its outspoken Co-Founder, Michael Saylor, have mostly stolen the limelight over the last decade.

Today, I want to talk about the Marathon. While Microstrategy simply holds its crypto position in treasury, Marathon employs a mixed mining, selling, and holding strategy.

As of December 31, 2023, Marathon held a total of 15,174 unrestricted Bitcoins on its balance sheet.

They mined 1,853 BTC in December alone, bringing their total BTC production for the year to 12,852 BTC.

This increase in Bitcoin production was aided by an 18% month-over-month increase in their average operational hash rate to 22.4 EH/s.

Marathon also reported selling 704 BTC, or about 38% of their monthly production, in December to cover operating expenses.

They intend to sell some of their Bitcoin holdings in future periods to support monthly operations, manage their treasury, and for general corporate purposes.

Additionally, the company held $356.8 million in cash and cash equivalents on its balance sheet at the end of December, which was unrestricted.

The combined balance of unrestricted cash and cash equivalents and Bitcoin increased from $802.3 million to $998.5 million at the end of December 2023. Yet the market cap for MARA exploded from $1.4B in October to $5.6B (down from a high of $7B) in its latest run.

This begs the question: Is the recent runup in MARA above the base currency justified?

Since it is a miner, the April 2024 halving will result in half the reward for the same amount. Will this premium start to evaporate? 💸

So, what do you think will be the best exposure to Bitcoin moving forward?

Marathon? Microstrategy? BTC directly in a wallet?

Or perhaps one of the several ETFs in line:

Or MAYBE some sort of pair trade?

Long the underlying ETF, short MARA based on mining/halving thesis?

Would love the community feedback on this one - let us know what you think!

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Cheers,

The GRIT Alpha Team

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