Cryptocurrency and the blockchain are headline-news topics now. Consequently, you may be tempted to load up on Marathon Digital (NASDAQ:MARA). Yet, just because the Securities and Exchange Commission (SEC) approved 11 spot Bitcoin (BTC-USD) exchange-traded funds (ETFs), this doesn’t mean you should make a hasty trade with MARA stock.
At the very least, consider Marathon Digital’s risks and don’t just focus on the company’s growth potential. Marathon Digital stock could burn a lot of unwary investors during the next few weeks or even months, so the right attitude is caution, not overconfidence.
Why MARA Stock Flew and Then Crashed
You might call it a version of “buy the rumor, sell the news.” A more accurate description would be, “buy before the known event happens, then sell when it actually happens. That’s basically what took place with cryptocurrency-adjacent assets, such as Marathon Digital stock.
MARA stock vaulted from $4 to $24 dollars in 2023, with much of the gains occurring during the fourth quarter. The ultra-efficient markets started pricing in the anticipated SEC approval of spot Bitcoin ETFs before this event actually happened. When the approval was finally announced, there was a quick share-price pop but it didn’t last long.
The months-long anticipatory rally was so swift and extreme in magnitude that it made Marathon Digital stock vulnerable to a painful retracement. Already, that retracement has begun and there’s a lot of room below for the stock to continue crashing.
Marathon Digital Stock Isn’t a Perfect Bitcoin Proxy
Last year, MARA stock was one of a small handful of go-to Bitcoin proxies for people with crypto-restricted brokerage accounts. That’s not the case anymore, though, as investors will now have access to at least 11 spot Bitcoin ETFs.
Those ETFs will follow the Bitcoin price very closely. Meanwhile, Marathon Digital stock will sometimes go in a different direction than Bitcoin. This could occur if Marathon Digital has an unfavorable earnings report, for example.
Just remember the principle of “know what you own.” Marathon Digital is a cryptocurrency miner that will encounter problems just like any business will. Bitcoin isn’t a business; it’s a currency (or possibly a security or even a commodity, depending on whom you ask).
Marathon Digital will have some great months and some less-than-great months. For instance, the company produced 1,187 Bitcoin in November, down 1% compared to October. But then, Marathon Digital produced 1,853 Bitcoin in December, up 56% compared to November’s output.
Along with the risk of uneven month-to-month Bitcoin output, MARA stock also involves finance-related risks. Marathon Digital hasn’t been a consistently profitable company, so that may be a deal-breaker for some cautious investors. Also, Marathon Digital expects to deduct $178.6 million from its balance sheet to pay for two Bitcoin mining sites.
MARA Stock Isn’t Right for Everyone
You don’t have to panic-sell Marathon Digital stock, as long as you really know what you own. Marathon Digital is a business with expenditures that might outpace the company’s revenue in upcoming quarters. Also, Marathon Digital’s Bitcoin production pace will vary from month to month.
Moreover, MARA stock looks vulnerable to heavy selling pressure now that the SEC has approved 11 spot Bitcoin ETFs. Thus, it’s fine to invest in Marathon Digital as long as you know what you’re doing. Just keep your position size small, and if you’re a risk-averse trader, then you don’t have to get involved at all.
On the date of publication, David Moadel 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 InvestorPlace.com Publishing Guidelines.
