While cryptocurrencies have captured global headlines thanks to the mercurial rise of Bitcoin (CCC:BTC-USD), it’s crypto miners that have offered some of the biggest gains in the capital markets. A prime example is Marathon Digital Holdings (NASDAQ:MARA). Long considered a speculative play on digital assets, no one is joking about MARA stock today.
For one thing, its incredible performance is enough to shut down naysayers. Over the trailing year, MARA stock gained over 3,100%. That’s remarkable, even compared to other wildly trading assets. For comparison, Bitcoin over the same frame moved up “only” about 400%. Plus, momentum begets momentum, which theoretically bodes well for MARA as the underlying crypto sector gains widescale credibility.
Still, it’s fair to point out that MARA stock is posting some worrying signals. Primarily, over the last five business days, shares are down about 20%. Over the past calendar week, many cryptocurrencies are up double digits. Some, like Ethereum Classic (CCC:ETC-USD) are up triple digits.
Adding to the woes is the trailing month period, which sees MARA stock down a staggering 41%. In sharp contrast, BTC is up about 4%. Are Marathon shares providing an early warning signal, or should cryptocurrency holders dismiss such a concern?
On the positive front, sentiment continues to grow for Bitcoin and other cryptocurrencies — there’s just no denying this. Yes, I agree with many of the critics that the rally is absolutely nutty. Nevertheless, we’ve got to keep in mind the adage, the market can stay irrational longer than you can stay solvent. As we’re seeing, this applies to digital assets as it does to equity units.
But at some point, all good things must come to an end. With Wall Street traders moving MARA stock in a different direction than the broader cryptocurrency sector, I don’t think investors should outright ignore this contradiction.
There’s Something Familiar About MARA Stock
One of the biggest regrets that I have about the insanity that occurred last year was that I relied too much on fundamental analysis to assess the markets, whether that be the traditional kind or the digital variety. It cost me personally because I didn’t appreciate the above adage until valuations had ballooned out of control.
Sometimes, the market wants what it wants. No, that’s not an elegant observation nor is it unique. But it’s a concept to remember the next time we encounter a crazy phase like we’ve witnessed in MARA stock and other speculative plays.
Having said that, we must also recognize that the markets cannot go up indefinitely without incurring a correction. And it’s very possible that while cryptocurrencies can continue moving higher, MARA stock might be facing a correction.
That’s because there’s something familiar about its price action. About a month-and-a-half before we kissed 2020 goodbye, one of the hottest stocks in town was ChargePoint (NYSE:CHPT). As a charging station provider for electric vehicles, CHPT enjoyed tremendous relevance.
Heck, it even indirectly benefitted from political tailwinds, with President Joe Biden’s administration strongly pushing an environmental agenda. Despite that, CHPT incurred wild “peaky” swings in valuation between late November 2020 to mid-January of this year. Following this unpredictably wild phase, CHPT began correcting harshly.
If you notice, MARA stock also pinged a similar peaky price action between early February to mid-April of this year. For your benefit, I juxtaposed the two charts and your eyes don’t deceive you. For the paired portion of the chart, there’s an 87% correlation coefficient.
In my opinion, this type of price action suggests that the bulls simply lack the energy to keep MARA elevated. Therefore, it may follow in ChargePoint’s footsteps, as in downward.
No Hate, Just Realism
For full disclosure, I do have a short position on MARA stock, so you should know that I have a bias. Still, I honestly believe that what I’m presenting is an objective analysis. Again, if you look at the charts for both MARA and CHPT, they started off promising but encountered wild turbulence. CHPT eventually tumbled, and I think the risk is high that MARA will do the same.
Please note, though, that I don’t hate Marathon. But the enthusiasm for MARA and cryptocurrencies in general has gotten out of hand. That doesn’t mean that eventually, both miners and the crypto assets themselves won’t rise eventually. But for now, you’re taking a big risk if you decide to buy Marathon — or any other mining play — at these levels.
On the date of publication, Josh Enomoto held a short position in MARA and long positions in BTC and ETC.
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.