With a name like Marathon Patent Group (NASDAQ:MARA), you would think that the company was focused on intellectual property, but this was its old business. Buying MARA stock today gets you into the cryptocurrency market.
Marathon now is a cryptocurrency miner, with an emphasis on Bitcoin (CCC:BTC). This has absolutely supercharged MARA stock during the past four months. Note that the price has gone from $2 to around $38. The market capitalization is now at $3.5 billion.
But of course, the Bitcoin market has seemingly hit an inflection point. This cryptocurrency is no longer at the fringes of finance. For example, you can now easily make transactions using a mobile app from operators like PayPal (NASDAQ:PYPL), Square (NYSE:SQ) and Robinhood.
Then there is Elon Musk’s Tesla (NASDAQ:TSLA), which recently acquired $1.5 billion in bitcoin. This was a big spur to this week’s rally in the digital asset.
However, it’s not just next-generation platforms that have adopted Bitcoin. This week there was an announcement from Mastercard (NYSE:MA) that it was preparing to support cryptocurrencies on its global network. The main reason is that the company has seen an uptick in activity from customers.
Next, the Bank of New York Mellon (NYSE:BK) has announced plans to hold, transfer and issue Bitcoin and other cryptocurrencies for clients. The firm is the oldest financial institution in the U.S.
So in light of all this, it is no surprise that MARA stock has been on a tear. But then again, is this the best way to play the crypto wave?
Well, let’s take a look.
A Closer Look at Marathon Stock
Marathon has been a miner for about five years or so. This was the result of a merger with Global Bit Venture.
But until recently, it has been a struggle. There are heavy capital costs in running a mining operation because of the need to buy sophisticated computer systems. Energy expenses are also an issue. Of course, with bitcoin soaring, this certainly makes things much easier.
The operations of the business are still fairly small. During the latest quarter, the revenues came to only $835,184. There was also an operating loss of $2 million.
Now Marathon was smart to pull off a secondary offering of securities in MARA stock when it was on the upswing. The company was able to raise $250 million. In other words, the balance sheet is in much better shape now.
Interestingly enough, Marathon would go on to purchase $150 million in Bitcoin.
“[W]e have accelerated the process of building Marathon into what we believe to be the de facto investment choice for individuals and institutions who are seeking exposure to this new asset class,” said the company’s CEO, Merrick Okamoto. “We also believe that holding part of our Treasury reserves in Bitcoin will be a better long-term strategy than holding U.S. Dollars, similar to other forward-thinking companies like MicroStrategy.”
Bottom Line on MARA Stock
Going all-in on Bitcoin looks to be the right strategy. This digital asset has become the standard in the industry. It should also have less risk in terms of regulatory pushback.
But again, the core mining business is quite small, at least in terms of the out-sized valuation of the business. Even though the growth has been strong, it is probably limited. There is also intense competition in the category.
Moreover, by making a big purchase of Bitcoin, MARA stock really does not gain much of the benefit from the leverage of the mining business. For the most part, the value of the company will be a proxy for Bitcoin. So if you are an investor, why not just buy the digital asset instead?
That is, it could be tough to maintain this valuation.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.