With the rise of the cryptocurrency complex recently, one of the seemingly logical deductions centers on the blockchain mining industry. Generally, the two segments – the spot market for cryptos and the stock price of publicly traded blockchain enterprises – share a reasonably strong correlation. That is, as cryptos rise, they take blockchain miners up with them. And the opposite also tends to be true.
Case in point is Marathon Digital (MARA). A popular blockchain mining specialist, Marathon saw significant gains recently. On the July 3 session, MARA stock popped up 10.53% against the prior Friday session. Over the trailing five sessions through July 3, MARA returned its shareholders nearly 26% of equity value. In the past month, this metric jumps to almost 67%.
Naturally, such dramatic surges inspire the fear of missing out or FOMO. And it’s quite possible that in the nearer term, MARA stock could jump higher. Earlier this year, the total market capitalization of all cryptos bounced above and below the critical $1 trillion line. Since approximately mid-March, however, the $1 trillion line appears to symbolize strong support.
Therefore, it wouldn’t be out of the question to assume that digital assets may continue to tick higher. In doing so, MARA stock could ride the sector’s coattails. Although a compelling argument, prospective investors should also be mindful of the risks involved.
Unusual Options and Institutional Investors
For MARA stock, options traders wasted little time placing their bets. Following the close of the July 3 session, Marathon represented a highlight in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 275,239 contracts against an open interest reading of 922,135.
Though the delta between the Monday session volume and the trailing one-month average metric was only 4.63%, that session of course was a slow one ahead of the July 4 holiday. Drilling down, call volume hit 174,005 contracts against put volume of 101,234, yielding a put/call volume ratio of 0.58. Per Barchart, the current put/call open interest ratio is 0.80.
Notably, options flow data from Fintel shows a noticeable uptick in optimistically oriented trading, with several traders toward the end of the Monday session selling put contracts in multi-sweep transactions, which feature bullish implications.
Against a broader framework, institutional investors may also provide downwind fuel for MARA stock. As Barchart’s content partner The Motley Fool pointed out, BlackRock (BLK) filed its application for a crypto-related exchange-traded fund. With the big dogs of Wall Street giving their nod of approval for blockchain assets, it was only natural for individual cryptos to rise.
In so doing, blockchain miners like Marathon tagged along for the ride. Still, investors should be cautious about overexposure to MARA stock.
The Problem with Miners and Other Crypto Enterprises
On the surface, MARA stock should rise higher as the crypto sector potentially rebounds. However, that’s also the problem: Marathon and other crypto-related enterprises depend largely on upside sentiment for the underlying market. If said sentiment dries up or reverses itself, the blockchain “support crew” will likely suffer massive losses.
In other words, the correlation to the crypto market is beautiful when circumstances are moving according to the bulls’ desires. However, MARA stock is beholden to normal trading hours on Wall Street. On the flipside, cryptos trade 24/7/365. Plenty of things can go down over the weekend, resulting in chaotic trading on the Street on Monday.
More critically, Marathon’s revenue trend ebbs and flows with crypto sentiment. When blockchain assets hit their peak valuation in 2021, Marathon’s sales jumped to $159.2 million from a mere $4.4 million in 2020. However, last year, the revenue haul dipped conspicuously to $117.8 million.
In part because of the unpredictable nature of Marathon’s business, MARA stock trades at a sales multiple of 20. While it’s difficult to classify Marathon, no sector carries such a high multiple. Sure, some segments like REITs and water utilities do run elevated premiums but we’re talking about price-sales ratios of around 6 times, not 20 times.
Put another way, Marathon may offer a viable platform for short-term speculation. However, betting on MARA stock for the long term presents obstacles simply because the wild nature of cryptos imposes predictability challenges on the underlying business.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
