Marathon Digital Is Being Dragged Down by the Cryptocurrency Market
After an impressive run in this year’s first half, the stock of cryptocurrency mining company Marathon Digital Holdings (NASDAQ:MARA) stock looks to now be played out.
The company specializes in mining Bitcoin (CCC:BTC-USD) and other cryptocurrencies by solving cryptographic equations with ultra-powerful computers has enjoyed a spectacular run in the past six months.
Year-to-date, MARA stock is up more than 180% at $27.79 a share. However, the company’s stock price peaked at $57.75 a share in April.
Since then, the share price has fallen 46%. Not surprising, the decline in Marathon Digital’s stock has mirrored the fall in various cryptocurrencies.
With volatility in digital coins continuing, investors may want to take a wait-and-see approach with MARA stock.
Mixed Results and MARA Stock
Marathon Digital Holdings is solely focused on mining cryptocurrencies. It is one of the four leading cryptocurrency miners in the world along with SOS Limited (NYSE:SOS), Bit Digital (NASDAQ:BTBT) and The9 Limited (NASDAQ:NCTY).
To help spur growth, the company is building a 300-megawatt Bitcoin mining operation in Texas that will help it mine the digital coin and other crypto assets around the clock.
In the first quarter of this year, Marathon Digital mined a total of 192 Bitcoin and spent $150 million buying another 4,813 Bitcoins.
While Marathon Digital has been aggressive in its pursuit of Bitcoin, the company has reported mixed financial results.
Despite a market capitalization of more than $3 billion, Marathon Digital generated only $9.2 million in revenue in this year’s first quarter.
For all of 2020, the company generated only $4.4 million in revenue and ended last year with a net loss of $10.4 million. Revenue is primarily generated by selling the Bitcoin that the company mines.
While some analysts speculate that Marathon Digital’s revenue could exceed $200 million this year, that seems like a big leap for the company to make, especially with the price of Bitcoin slumping.
After peaking near $64,000 this spring, Bitcoin’s price has nearly halved, sliding to slightly more than $35,000. Bitcoin’s price has dropped below $30,000 in recent weeks before reversing and clawing its way upwards again.
Searching for Stability
Volatility continues to be the watch word when it comes to cryptocurrencies. Bitcoin, Ethereum (CCC:ETH-USD) and other digital assets continue to see daily price swings up and down of 5% or more.
This volatility is rattling MARA stock and unnerving the company’s shareholders. The MARA stock price has risen and fallen by more than 40% in a week several times this year. That kind of rollercoaster has many investors reaching for the “sell” button.
What’s needed now is for the cryptocurrency sector and Marathon Digital’s stock to find some stability.
Yet the volatility in cryptocurrencies looks likely to continue, driven by an intensifying crackdown by regulators in China as well as growing environmental concerns over the energy consumed to mine digital coins.
Not to mention the ongoing skepticism about the legitimacy of cryptocurrencies that pervades Wall Street and the corridors of power in Washington, D.C.
Gary Gensler, the recently appointed Chairman of the Securities and Exchange Commission (SEC), continues to make skeptical remarks about cryptocurrencies and pushing off the approval of exchange traded funds (ETFs) that would be focused on Bitcoin and Ether, even though such ETFs have won regulatory approval in neighboring Canada.
Hold Off on Buying MARA Stock
Bitcoin and other cryptocurrencies started the year off strong. Prices soared and digital coins seemed to gain mainstream acceptance. But sentiment has since changed as financial market regulators step in and concerns about the underlying value of cryptocurrencies grows louder.
Growth and acceptance have been replaced by turmoil and skepticism. In such an environment, investors should hold off on buying MARA stock.
Ongoing volatility can be difficult to stomach. But the prospects of a cryptocurrency crash makes taking a position in Marathon Digital Holdings right now too risky.
Wait to see if the cryptocurrency market stabilizes in the coming months and if Marathon Digital can improve its financial health. Once those elements are in place, investors can move decisively and with confidence to buy MARA stock.
Until then, any investment would be more headache than it’s worth.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
