One of the ancillary benefits for contributing content at InvestorPlace is the ability to bounce off ideas with your colleagues. As I’ve stated before, one of my go-to resources here is Will Ashworth. Most of the time, I’d say our arguments line up reasonably well. But with Marathon Patent Group (NASDAQ:MARA) stock, not only have we split but apparently, he’s eating a lot of cake.
From the start of Ashworth’s take on Marathon Patent, he warned that this is one of those “opportunities” where you could conceivably lose everything. While acknowledging that a sharp rise in bitcoin (CCC:BTC) and other cryptocurrencies could drive up MARA stock, he also noted that the underlying company has shoddy fundamentals.
He ended his argument by stating, “I’ve been asked to write about a lot of speculative stocks in recent weeks. This one takes the cake.”
Ashworth wrote his piece last August. Under any other circumstance, he’d probably be right. This was a company whose equity units were trading hands in three-digit territory. Throughout most of August, MARA stock was swimming under $4. So believe me, I completely respect the hesitation – that’s what most smart analysts would do.
However, the one thing that arguably kept MARA stock alive began turning in the most astonishing way possible. As a cryptocurrency-mining specialist, sentiment toward the blockchain token sector is the most critical catalyst. Obviously, if people don’t want these digital assets, there’s no point in mining them.
But in remarkable stretch last just under one month, bitcoin jumped to $20,000, then $30,000 and onto $40,000 before incurring what I believe to be a healthy corrective period.
Hopefully, you had read my take on nine crypto assets set to explode in 2021. I argued that multiple tokens were giving technical “tells” indicating a much higher move. Within two weeks of publishing, these digital investments took off like Samuel L. Jackson’s favorite word.
Can Rising Cryptos Support MARA Stock?
Nevertheless, Marathon Patent isn’t a virtual token. It’s in the business of mining them and profiting from that venture, which is a related concept but not nearly the same thing. And this is where Ashworth’s concerns are yet again relevant. If something happens to Marathon specifically, it doesn’t matter what goes on with the crypto market. MARA stock could plummet despite underlying optimism.
However, back in August, I argued that Marathon represented a barometer for the digital markets. Basically, crypto mining is a tricky endeavor in that depending on variables such as mining difficulty and token demand, you could either making a killing or get killed. As you may know, mining is energy intensive – and electricity at the scale many blockchain systems require is not cheap.
Thus, “If shares are rising, that means at least a few forward-thinking investors recognize that the economic environment has shifted favorably again to the miners.” Looking back, that was the understatement of the century. Sure enough, MARA stock has been a very profitable security.
But with the low-hanging fruit gone, is there any hope for current prospective buyers? If you’re willing to accept some risk, I believe there is.
First, we should recognize that MARA stock did not always share a direct correlation with the bitcoin price. In fact, between February 2016 and April 2017, MARA and BTC were inversely correlated to the tune of 75%. In other words, as bitcoin went up, Marathon Patent shares went down.
However, from May 2017 onward, the two assets share an intuitive direct relationship, a positive correlation of 59%. This to me is significant because it indicates that investor sentiment for MARA stock has become rational. As cryptocurrencies move higher, the platform to mine them should likewise accelerate.
Further, the bullishness in both subtly indicates that despite these elevated prices, mining is still economically viable. Typically, mining difficulty increases with rising prices. That badly crimps implied profitability for miners unless there is a broad consensus that prices will move higher.
Well, I think the 10x-ing of MARA stock since early November tells you all you need to know.
Be Wise, My Friends
Additionally, advantages exist in diversifying your speculation portfolio with crypto miners like Marathon. With the coins themselves, you never know what’s going to happen. As a prime example, ripple (CCC:XRP) was on a tear before it got torn down by a Securities and Exchange Commission lawsuit.
Suddenly, all that profitability evaporated. True, the same can happen to MARA stock. But there are also cases where something happens to some exchange in a foreign country and that dramatically and negatively impacts your holdings. Or you can accidentally throw away millions. Stuff happens. With publicly traded securities, you have protection against some egregiously tragic mishaps.
Therefore, I still believe Ashworth’s advice is solid. While MARA stock has potential, don’t be stupid. Only play with “dumb” money. If you can control yourself, I think you’ll be very happy one year from today.
On the date of publication, Josh Enomoto held a long position in BTC and XRP.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.