- Although Marathon Digital (MARA) represents an indirect approach to the burgeoning cryptocurrency sector, investors should be aware of the risks
- In particular, blockchain miners have different motivations than crypto investors such as not HODL-ing
- Marathon and its ilk offer administrative safeguards, but MARA stock is nevertheless a risky proposition (like any crypto-based investment)
While cryptocurrencies offer one of the most radical paradigm shifts in the broader capital markets, the sector isn’t for everyone, which is where a company like Marathon Digital (NASDAQ:MARA) comes into play. Unlike taking a direct wager on an asset like Bitcoin (BTC-USD) or Ethereum (ETH-USD), MARA stock is tied to the crypto-mining space. Therefore, it’s related to virtual currencies but at the core of Marathon is a legitimate business enterprise.
For the folks that don’t want to dive headfirst into the crypto space, MARA stock initially appears enticing. While blockchain advocates swear on the liberating emotions that decentralized financial applications offer, the reality is that centralized custodianship has its benefits too — especially for those that can be a bit absent minded. As you may know, millions (if not billions) may be lost forever due to forgotten passwords.
If the very idea of misplacing your password — it honestly happens to all of us — leading to evaporated riches gives you cold sweats, MARA stock could be for you. You lose your password with a brokerage account, you can get access right away. The same cannot be said about self-custodial crypto accounts.
Still, you must be aware that blockchain-related businesses have their own set of distinct challenges.
MARA Stock and the Motivational Split
In a classic episode of Pawn Stars, a customer with 3,000 ounces of silver bullion attempted to secure a premium over the spot price for his precious metals. However, the protagonist of the show, Rick Harrison, stated bluntly that he’s a businessman, not a speculator in the silver market.
Put another way, precious metal investors and precious metal retailers have similar but also vastly different motivations. In Rick’s case, he too wants the silver market to rise so he can sell the metal at a greater profit. But the difference is the timeframe. Rick wants to unload quickly in order to acquire other products to sell. On the other hand, investors can often extend their timeline per their liking.
That’s why MARA stock might not fully correlate with individual cryptos like Bitcoin or Ethereum. When you’re in the mining business, you’re not looking to hold on for dear life (HODL), to borrow the crypto-trading lexicon. Since mining features recurring monthly costs such as utilities and rent for large-scale enterprises, miners have to focus on cash flow.
But because virtual currencies are so volatile, a few good months could eventually give way to devastating bearish cycles. Fail to be quick on the trigger regarding the mining and selling of crypto assets and you could be staring at stomach-churning losses.
Marathon Also Has to Worry About Security Concerns Too
As mentioned near the top, one of the benefits of investing in MARA stock is that it removes some of the administrative responsibilities regarding the safeguarding of crypto holdings. The most frustrating and painful of these factors is password loss.
A recent study indicated that most people constantly forget their online passwords. Typically, it’s an inconsequential matter since the underlying platform provides custodial security mechanisms. But with self-custodial crypto holdings, you are entirely responsible for safeguarding your access. Again, that makes some folks uneasy, which is why MARA stock is intriguing.
Obviously, though, you must realize that the administrative duties don’t disappear; merely, your responsibility of said duties transfers from your control to another entity’s control. Indeed, Marathon lists this dynamic one of its disclosed risk factors:
“We rely on NYDig’s 100% cold storage custody solution held in a purpose-built physically-secure environment based on established, industry best practices to safeguard our digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. Nevertheless, NYDig’s security system may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by the Company.”
Therefore, it’s unwise to think that MARA stock is a safe alternative to crypto investing. It might be safer in terms of administrative safeguarding protocols. But nothing in the sector is truly immune from risk.
An Interesting Unit of Speculation
Are publicly traded crypto-mining companies worth your money? So long as you understand the distinct risks involved with downwind crypto-related investments, they can be an effective component of your portfolio — but only the portion which is earmarked for speculation.
Certainly, MARA stock is not quite to the level of investment category that you can rely on for stability and reliability. Its ebb and flow aligns largely with the wicked volatility of the crypto space. That’s one of the major setbacks for Marathon Digital.
But on the flipside, Marathon is a business and therefore, management presumably makes sensible business decisions (buying and selling) rather than HODL-ing for the destruction of the U.S. economy or some other fantastical event. For some folks that are interested in crypto but don’t want to play the direct game, MARA stock may be an effective middle ground.
On the date of publication, Josh Enomoto held a LONG position in BTC and ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.