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Marathon: Q3 2023 Update

Analyzing Marathon’s cost structure, balance sheet, growth prospects, and readiness for the halving.
Marathon: Q3 2023 Update

Marathon just revealed the state of its operations in its latest quarterly report. In this article, we analyze the data from this report to determine how well prepared the company is for the halving.

This article is the second in our series of quarterly updates on the public miners. We have previously analyzed Bitfarms.

Overview of Marathon

Marathon Digital Holdings is a US-headquartered public miner with operations in the United States, United Arab Emirates, and Paraguay.

Unlike some of its peers, Marathon is entirely focused on self-mining and has steered away from other verticals like hosting or high-performance computing.

The company has historically subscribed to its self-proclaimed asset-light hosted model, renting capacity from third-party hosting providers. However, it has recently been experimenting with other models like international joint ventures.

Marathon is also investing in bitcoin mining technology to become as vertically integrated as possible and owns a mining pool, firmware, management software, and part of an ASIC manufacturing company.

With 19.2 EH/s online, Marathon is the largest public miner by operating hashrate. The company is also the largest public miner by bitcoin hodl, owning a stack of 13,396 bitcoin.

Marathon has grown its bitcoin production by 467% in one year

It is no secret that Marathon has gone through some struggles. During the 2021 bull market, the company announced massive growth targets that it far from reached in time. Marathon anticipated having an operational hashrate of 13 EH/s by mid-2022 and 23 EH/s by early 2023. The result was only 3.9 EH/s in mid-2022 and 11.5 EH/s at the end of Q1 2023.

Massive scaling through a third-party hosted model provided various unforeseen obstacles, like hosting provider bankruptcies and permit delays, that prevented the company from growing its hashrate as quickly as anticipated.

However, things are now looking better for Marathon as its hosted facilities are finally coming online. The company has expanded its hashrate from 7 EH/s one year ago to 19.4 EH/s, making it the fastest-growing public miner.

Source: Marathon’s public filings

Massive growth, combined with improved up-time, has resulted in Marathon growing its bitcoin production by 467% from a meager 416 bitcoin in Q3 2022 to a massive 3,490 bitcoin in Q3 2023. Over the past year, Marathon has rapidly grown into an industry giant.

Marathon will likely soon reach its 23 EH/s goal as its facility in Garden City, Texas was energized in November and is expected to be fully operational later in the month with 4.1 EH/s. The energization of this site has been delayed since July.

The company has historically scaled through the hosted model in the United States, which, as mentioned, has not been particularly successful. As Marathon is getting its final US-based hosted facilities online, it focuses more on scaling internationally through joint ventures with local partners. More on that later in the article.

Marathon’s cost structure is improving but still not impressive

Let’s look at Marathon’s cost structure - the most critical factor in bitcoin mining. With a revenue of $97.8 million and direct costs of $59.6 million, Marathon achieved a gross profit of $38.2 million in Q3 2023, corresponding to a 39% gross margin. This gross margin places the company in the middle of the public miner pack from a direct cost perspective.

Source: Marathon’s public filings

With more bitcoin produced and a higher average bitcoin price, Marathon increased its revenues by $16 million, or 19.7% quarter-over-quarter.

Meanwhile, its direct costs only increased by $4.4 million, or 8% over the quarter. The company replaced many S19j Pro with the more energy-efficient S19 XP, which resulted in a quarterly decline in the direct cost per bitcoin produced.

Marathon’s SG&A cash costs in the quarter were $14.6 million, which is relatively high compared to most of its competitors. For comparison, Bitfarms, which is vertically integrated and has many more employees than Marathon, only had $6.4 million in SG&A cash costs in Q3 2023. Reducing the SG&A cash costs will be vital for Marathon going forward.

Marathon’s total SG&A costs, including non-cash share-based compensation, were $20.1 million in Q3 2023, corresponding to 21% of revenues. This number declined from 97% in Q3 2022 because Marathon increased its revenues significantly quicker than its administrative costs.

Overall, Marathon’s cost structure looks better than ever, but the company is still far from a cost leader in this industry.

Marathon’s margins could get thin after the halving

Marathon has never been among the lowest-cost public miners. The company’s direct bitcoin production cost in Q3 2023 was $17.1k, placing it in the mid-tier of the public miners.

However, Marathon impressively reduced its direct bitcoin production cost by 10% from $18.9k in Q2 2023. This cost reduction is due to Marathon improving its fleet efficiency by 8% from 27.3 J/TH to 25.2 J/TH over the quarter. In addition, achieving more operational stability undoubtedly contributed to lower production costs.

Marathon’s total cash cost per bitcoin in Q3 2023 was $21.3k, giving it decent margins at the current bitcoin price of $37k.

Source: Marathon’s public filings

However, Marathon will likely not be able to enjoy these decent margins for that long, as its direct cost per bitcoin will likely almost double to $31.6k after the halving.

The company aims to improve its fleet efficiency from 25.2 J/TH to 24 J/TH by plugging in its remaining S19 XP. Still, its production costs will be relatively high as it pays higher operating costs per unit of energy consumed than some of its low-cost competitors. I estimate that in Q3 2023, Marathon’s direct cost was $66.8 per MWh consumed, which is 33% higher than Bitfarms’ $50.8 per MWh.

Marathon’s higher operating costs on a site basis mean they generate approximately the same gross margins as Bitfarms, which has a 28% less efficient fleet. Thus, Marathon does not have the same cost-cutting potential as some competitors, which may have less efficient fleets but lower site operating costs.

With Marathon’s direct bitcoin production cost capped at around $31.6k, the company’s post-halving gross margin could become squeezed if the price falls below the current level of $37k. In addition, with an estimated $40k of total cash costs per bitcoin produced after the halving, Marathon could be forced to reduce its SG&A cash costs.

Overall, Marathon’s cost structure doesn’t look fully halving-proof. With an already highly efficient fleet, the company has limited potential for reducing costs by fleet upgrades. However, I expect Marathon to lower its site operating costs over the long term as it expands internationally through joint ventures.

Marathon’s JV model lets them scale internationally

Marathon currently has 19.4 EH/s plugged in and is soon expected to add 3.9 EH/s in Garden City, 1.1 EH/s in Abu Dhabi, and 0.6 EH/s in Paraguay (assuming 50% JV ownership), giving it a total hashrate of 24.8 EH/s.

Source: Marathon’s public filings

With 24.8 EH/s soon plugged in, the company will likely finally reach its 23 EH/s goal. However, the company could expand to 26 EH/s if it replaces some of its S19j Pro with the more powerful S19 XP.

Marathon has stated that it expects to expand by 30% in 2024, meaning it could reach 33.8 EH/s, corresponding to an absolute growth of 7.8 EH/s from its expected end-of-2023 hashrate. Thus, for 2024, the company expects to grow considerably slower than in 2022 and 2023. 

Marathon is likely tired of high costs and energization delays at its hosted facilities in the United States and will, for 2024, focus on growing through international joint ventures. The company is currently nearing the completion of two such sites in Abu Dhabi, totaling 7 EH/s, of which Marathon owns 1.4 EH/s, as part of its 20% stake in the joint venture. This cooperation appears to have worked well so far, prompting Marathon to initiate similar joint ventures in other parts of the world. You can read this article I wrote to learn more about mining in the UAE.

Marathon just announced its latest international joint venture with Penguin Digital in Paraguay, where the two companies will cooperate to build 1.1 EH/s. Marathon’s ownership percentage in this project is unclear, and the project will not contribute significantly to the company’s hashrate. However, we can view it as a Paraguay pilot project, allowing the company to expand in the country if it proves successful. Paraguay is a promising location for mining with its massive hydropower surplus, and Marathon now has its foot in the door.

Marathon’s international joint venture model is considerably more attractive than its previous large-scale third-party hosted model. This model allows the company to scale in new jurisdictions with the help of local, well-connected partners and could allow Marathon to access exceptionally cheap electricity that is impossible to reach without local connections.

Over time, the joint venture model could make Marathon the most geographically diversified bitcoin mining company in the world. In addition, Marathon will likely be able to gradually reduce its bitcoin production cost over time as its international sites have lower operating costs than its US-based hosted sites.

Marathon’s strong balance sheet provides optionality following the halving

Marathon has a strong balance sheet with relatively little debt and massive liquidity. The company currently has a debt-to-equity ratio of only 0.2, which is extremely solid. The little debt relative to equity provides flexibility going forward, which is essential going into the halving.

The company’s debt-to-equity ratio has declined considerably over the past year, from a peak of 2.03 in Q4 2022.

Source: Marathon’s public filings

The company has historically had $747 million in convertible notes that have worried many shareholders. In Q3 2023, Marathon exchanged $417 million of these notes for 31.7 million newly issued shares and thus reduced its convertible debt by approximately 56%.

The company’s convertible note transaction represents a 21% discount to the par value, resulting in $101 million in cash savings before transaction costs. The company only paid a 1% interest rate on these notes, and with the interest rates increasing, the market value of the notes fell considerably. The company used this opportunity to retire the notes, strengthening its balance sheet ahead of the halving.

For the first time, Marathon has more liquidity than debt. At the end of Q3 2023, the company had $388 million in cash, bitcoin, and $325 million in debt. Due to the bitcoin price increase, the company’s current liquidity is estimated at a massive $597 million.

Source: Marathon’s public filings

Marathon’s balance sheet couldn’t be better prepared for the halving. The company’s $597 million in liquidity will give it the optionality to opportunistically expand following the halving.

However, the best opportunities for acquiring distressed assets following the halving at fire sale prices will be for mining rigs and not sites. Marathon already has an efficient fleet and instead needs low-cost sites, which could prove more challenging to acquire than machines. Therefore, it remains to be seen if Marathon can efficiently put its massive war chest to use to expand opportunistically.


Marathon appears to have finally gotten its house in order just in time for the halving. The company has expanded its hashrate from 7 EH/s one year ago to 19.4 EH/s, making it the fastest-growing public miner. Its growth will likely slow down in 2024 as it fills its remaining facilities.

Marathon’s cost structure looks better than ever, but the company is still far from a cost leader. With an already highly efficient fleet, the company has limited potential for reducing costs by undertaking fleet upgrades, and its margins could become thin following the halving.

Even though its margins might get low after the halving, its massive $597 million liquidity will allow it to get safely through the halving and potentially expand through opportunistic distressed asset acquisitions.

Over time, Marathon’s international joint ventures could make it the most geographically diversified bitcoin mining company globally. In addition, it will likely be able to gradually reduce its bitcoin production cost over time as its international sites have lower operating costs than its US-based hosting sites.

To conclude, some of Marathon’s higher-cost US-based hosted sites might get into trouble after the halving if the bitcoin price falls below $30k. However, the company will have no problems weathering the halving thanks to its strong balance sheet and its international joint venture model will help it reduce costs going into the 2028 halving. Thus, things are looking relatively good for Marathon over the long term, although it could experience some short-term volatility following the halving.