Marathon Patent Group Is a Blockchain Trap

In any other period, a speculative organization like Marathon Patent Group (NASDAQ:MARA) wouldn’t receive much attention outside of niche investor communities that gravitate toward high-risk gambles. However, because of the novel coronavirus pandemic, the paradigm has completely changed. For now, this new normal has facilitated a remarkable trajectory in MARA stock.

Cryptocurrencies: Pile of altcoins represented as physical coins
Source: Shutterstock

Primarily, this is most likely due to the influx of rookie participants in the stock market. Initially, the pandemic caused most states to hunker down through stay-at-home orders, excepting essential activities. Further, several companies rushed to implement work-from-home platforms. While we should applaud corporate America’s quick thinking, it has also given rise to unintended consequences.

One of those consequences is the skyrocketing of MARA stock. Billed as one of the first Nasdaq-listed cryptocurrency mining companies, Marathon Patent Group focuses on building out its mining infrastructure for the purposes of digital asset generation. Obviously, with the bullish shift toward blockchain reward tokens like bitcoin and ethereum, many speculators turned to Marathon.

On one level, I can appreciate why MARA stock appeals to gamblers. For starters, any viable blockchain ecosystem requires robust participation, which includes crypto miners. Second, you can buy equity shares of Marathon Patent at less than $4 a pop, at the time of this writing.

Now compare that to bitcoin, which is nearing $12,000. Recently, ethereum jumped past the $400 level. Psychologically, many people prefer whole ownership of assets, which is difficult for something like bitcoin.

Of course, the problem is that many newbie participants don’t understand that price doesn’t necessarily correspond with value. What might look like a cheap stock on paper could turn out to be a very costly venture.

MARA Stock Is Awful on All Counts

Indeed, if you take just a cursory look at Marathon Patent’s financials, it would be enough to dissuade most rational actors. Most alarming is the lack of financial stability. It has a very weak balance sheet, encumbered by debt relative to its cash position. Further, its Altman Z-Score ranks in negative territory, indicating deep distress.

Adding to the pain, its three-year revenue growth rate is sharply negative. Despite the shoddy financials, though, MARA stock is trading at 11 times price-to-book and more than 18 times price-to-sales. Simply put, this is extreme and unjustified exuberance for such a lackluster organization.

But the biggest criticism I have is that the long-term price action of MARA stock bears little resemblance to the cryptocurrency benchmark bitcoin. Sure, both MARA and bitcoin are volatile assets. However, only the latter has demonstrated sustained upside.

This becomes clear when you stack these two together on the same chart. For this purpose, I used a logarithmic scale because of the wide nominal price variance. Over the years, bitcoin transitioned from trading in the low hundreds to nearly $12,000.

MARA stock vs. Bitcoin price
Click to Enlarge
Source: Chart by Matt McCall Research Team

For MARA stock, it’s almost the opposite. Like bitcoin, it started in the low hundreds, but similarities ended there. As I mentioned, shares are trading under $4.

Another worrisome point is that Marathon shares have traded in a consistent “step-down” pattern. Although the pattern has been briefly broken up by extreme spikes in market value, the bears eventually take over. Moving forward, I don’t expect this dynamic to change.

Interestingly, MARA has charted a long-term support line at $3.68 that has become resistance post-September 2018. While shares are currently above this level thanks to last Friday’s robust trading, the bigger picture is hardly encouraging.

Just Stay Away

If I can summarize the strange phenomenon that is MARA stock, it’s that this is a false narrative. On the surface, Marathon Patent looks the part. It’s a crypto miner, technically making the company a part of the broader blockchain ecosystem.

However, look beyond the façade and you’ll see MARA for what it is: a stumbling, troubled company without a viable business. Admittedly, the influx of new traders makes Marathon look appealing as a high-profit potential play. But you only need to look at its historical chart relative to bitcoin to realize how risky this story is.

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