As Goes Bitcoin — Marathon Digital Holdings Isn’t Difficult To Figure Out

Predictability is a good thing to have in investments. But in the case of Marathon Digital Holdings (NASDAQ:MARA), being predictable is actually part of the problem. That’s why I continue to find it hard to get behind MARA stock.

a crypto mining rig
Source: Mark Agnor /

The Bitcoin (CCC:BTC-USD) mining stock has, as you might expect, a high correlation with the price of the cryptocurrency. That’s been a winning formula for MARA stock. In the last 12 months through June 11, 2021, Marathon Holdings is up a whopping 2,754%. That’s more than 10x the gain in Bitcoin in that time. 

However, since closing at a high of $56.56 on April 5, 2021 , MARA stock is down 53.1%. Bitcoin is down 38.9% over that same period.

This is not going to be an article where I bang on Bitcoin. If you made an investment in either of these assets 12 months ago you’re sitting on a nice gain. And cryptocurrency will continue to be attractive as long as government officials and the Federal Reserve play fast and loose with the dollar. 

However, with Marathon Holdings now purchasing Bitcoin as well as mining it, the company is even more closely aligned with the cryptocurrency. In fact, at this point, the argument may be to simply buy Bitcoin.

On the Wrong Side of Public Opinion 

I believe that there’s more than a little bit of opportunism in the cries about the horrors of Bitcoin mining. It uses a large amount of electricity, but it is agnostic as to the source of that power. You could very well have Bitcoin miners buying renewable energy.  

In fact, that was an opinion posited by CoinShares. According to the cryptocurrency asset management and analysis firm, the BTC network gets over 74% of its electricity from renewables.

And while the report is being disputed, even if it is accurate, some critics will bemoan the inefficiency of using renewable energy to mine cryptocurrency which still has more than its fair share of non-believers.

And this is even becoming an issue for true believers such as Tesla (NASDAQ:TSLA) CEO Elon Musk. Musk recently announced that Tesla would no longer accept Bitcoin as a payment method because of its rapidly increasing use of fossil fuels.

Interestingly, Musk also made a point to say that Tesla wouldn’t be selling any of its previously acquired Bitcoin. He also left the door open for using Bitcoin for purchases again if mining moved to a more sustainable energy source.

It’s an interesting debate and one that will continue. But for now, Bitcoin is in the cross-hairs of public opinion. And that puts Marathon Holdings squarely in the firing line as well. 

Finding Benefit in Proof of Stake 

The environmental impact of mining Bitcoin is leading to another debate about whether Bitcoin would ever change from its current Proof of Work (PoW) protocol to a Proof of Stake (PoS) protocol. There’s no reason to believe this will actually happen, but if you wanted to make an interesting bull case for Marathon Digital Holdings this could be it.

The company already owns approximately 5,000 BTC, largely through its direct purchase of the cryptocurrency. This would provide an intriguing hedge for the company if Bitcoin ever did move to the PoS protocol.

However, while it makes for fun speculation, it’s not a good reason alone to buy MARA stock.

Tough Math Makes Buying BTC Better Than MARA Stock

The math I’m referring to is the block reward that miners receive from Bitcoin. In May 2020, this reward was cut in half and sits at 6.25 tokens. It’s likely to get cut in half again by 2024. That will make Bitcoin less valuable to miners and much tougher to mine.

And that means the harsh reality for investors is that Marathon Holdings can only remain solvent if Bitcoin rises. 

Marathon Digital remains highly predictable. I suppose that’s comforting on the one hand. But it should also give investors cause for genuine concern. Right now, the argument for buying MARA stock is as a side-door way to own Bitcoin. As BTC rises so will MARA.

The problem is that the opposite remains true as well. And that’s even more the case as Marathon is now directly buying Bitcoin.

On the date of publication, Chris Markoch 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 Publishing Guidelines. 

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019. 

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