If you’re looking for exposure to cryptocurrencies, Marathon Digital Holdings (NASDAQ:MARA) certainly qualifies. But without betting the farm on this exciting but riskier play, the MARA stock price chart and a hedged options strategy are a better plan for mining profits. Let me explain.
Despite a slump of roughly 29% this month in MARA stock and nearly 51% at its worst, it’s been a terrific year to be a shareholder. In the face of that pressure the digital mining play remains higher by 230% in 2021. And that’s on top of last year’s out-of-nowhere return of nearly 1,100% surge. That’s when MARA was a puny micro-cap priced for as low as 35 cents last March.
Today and at a price of around $34.50 a share and sporting a $3.4 billion valuation, the business environment has been, to say the least, good. But more than ever and going forward, that success is inexorably tied to Bitcoin (CCC:BTC-USD).
Marathon Digital Holdings
Marathon was once a largely unknown entity. And for good reason. If an investor had come across the stock, MARA was likely dismissed for mostly failing to produce intrinsic value. But today’s MARA stock is a hugely different animal. MARA is on the verge of becoming a giant among BTC miners, as well as an increasingly leveraged vehicle for exposure to the dominant alt coin.
In a nutshell, MARA has been aggressively positioning itself this year for continued adoption of the crypto market. Management has been hoarding Marathon’s war chest of BTC rather than selling and taking in actual revenues. At the end of last month the exposure amounted to more than $300 million of the alt coin. That’s risky business, right? Maybe. It’s also not the whole story either.
Following a surge of nearly 1,200% in Bitcoin off last March’s pandemic low of $3,850 some may see Marathon’s strategy of mine-and-hold as even more dangerous. And today, with BTC valued at $1 trillion and only the U.S. dollar and euro larger in terms of total currency circulation, there’s legitimate reasons to give pause on MARA’s strategy. But Marathon is wagering heavily on BTC in other ways too.
Bottom line, MARA is committed to growing its mining operations at potentially, very alarming levels of exposure. Not only is MARA hoarding the BTC it owns, but the miner has “claims on all the top performing mining machines” available in mass production to be manufactured through March 2022. Moreover, with the strategy expected to yield a miner fleet of 103,000, Marathon is stockpiling in other meaningful, make-or-break ways too. Yikes!!??
MARA Stock Weekly Price Chart
Source: Charts by TradingView
MARA is obviously not for widows and orphans. You would, however, find likely sympathy from Kraken exchange’s CEO who estimated BTC could be worth at least $1 million per coin and outspoken and heavily-vested Bitcoin and top fund manager, Ark Invest’s Cathie Wood.
What’s more, Marathon’s commitment to the crypto market is the type of wherewithal that can pay investors back with the proverbial tenbagger. Or larger. Think Amazon (NASDAQ:AMZN) or Tesla (NASDAQ:TSLA).
The reality is most stocks spied reaching for the stars, fail to make good on that promise. Still and right now, there is good news shaping up in MARA stock. Instead of asking investors to dreamily stargaze, Marathon is offering a chance to buy shares at more technically grounded levels.
Watch for a Crossover
This week a bullish-looking doji weekly candlestick which successfully tested MARA’s 50% retracement level was confirmed. Thus far, follow-through has been met with shares quickly slipping back inside the prior period’s bottoming pattern.
But along with an oversold stochastics, a second attempt entry is worth monitoring for a potential buy decision.
The suggestion is to watch for a bullish crossover from the secondary indicator in the coming days, alongside a rally in MARA back through the prior week’s pattern high of $37.09. Should those conditions be met, I’d proffer a partially-hedged and flexible stock collar as a way to gain exposure to shares. One favored vehicle of this kind is the modified September $60 call / ($35/22 put vertical) combination. This looks good from a risk standpoint, as well as for gazing and possibly grazing on great profits.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in Grayscale Bitcoin and Ethereum products (GBTC, ETHE, ETCG) and Ark Invest ETFs (ARKK, ARKG), but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.