Compass Point downgraded MARA Holdings (MARA) to Sell from Neutral on Tuesday, lowering its outlook ahead of the company’s upcoming earnings report, due to concerns over escalating cash burn.

The research team pointed out that Marathon Digital is grappling with mounting operational expenses, particularly in light of falling bitcoin prices and high energy costs, which are putting a strain on its profitability. Despite previous growth efforts, the firm’s cash flow has continued to worsen, a trend Compass Point believes will persist if current conditions hold.

The downgrade comes just ahead of MARA’s earnings release on May 8, and analysts are wary of potential financial challenges. According to the note, the company’s reliance on debt financing for its ambitious expansion plans has compounded these risks, especially as interest rates remain elevated.

Furthermore, MARA’s strategy of scaling operations through debt rather than internal cash flow is now being questioned. Compass Point suggested that without substantial improvements in bitcoin mining efficiency or an increase in bitcoin prices, the firm’s debt levels could continue to rise, ultimately leading to equity dilution.

The stock has seen a 20% drop in value since the start of the year, in line with broader challenges in the cryptocurrency mining industry. Despite these concerns, Compass Point acknowledged that the long-term potential of the company remains if bitcoin prices rebound, but warned of the immediate risk posed by ongoing cash flow issues.