Stocks to sell

The One Big Issue With MARA Stock (Hint: It’s Not Bitcoin Prices)

As one of the more popular stocks with high Bitcoin (BTC-USD) exposure, it’s no surprise that Marathon Digital (NASDAQ:MARA) shares bounced back. MARA stock tripled in price in November and December due to excitement over regulatory approval for Bitcoin ETFs.

However, after the Securities and Exchange Commission approved the first batch of Bitcoin ETFs, speculators quickly took profit.

This has resulted in a moderate slide for BTC, but a big price decline for shares in this cryptocurrency mining company.

With the stock now down by nearly 43% from its 52-week high, some may be tempted to “buy the dip,” in the hopes that another BTC rally will spark a massive rebound for MARA.

Yet besides the uncertainty over whether another Bitcoin breakout happens this year, there’s another major factor that could soon again weigh on shares.

MARA Stock and BTC’s Questionable Rebound Chances

As InvestorPlace’s Chris MacDonald recently argued, there are several factors that suggest higher prices ahead for Bitcoin. Even after the speculators “selling the news” last month, this year alone, Bitcoin ETFs could attract as much as $100 billion in institutional inflows.

Bitcoin’s upcoming halving event, which will further limit BTC supply growth, could also have a positive impact on prices. I agree that there are catalysts aplenty for Bitcoin. Still, this does not guarantee that prices will re-hit recent highs (around $49,000), much less climb back to $50,000 and beyond.

The surge of 77.9% over the past year may have already factored the ETF and halving catalysts into current prices, same with the prospect of lower interest rates.

However, the latest moves from the Fed may signal that Jerome Powell and other Fed officials aren’t looking to make a quick pivot back to more accommodative monetary policy.

In short, it’s very possible that the market late last year overestimated the impact of these would-be BTC catalysts. A further slide, or at least sideways performance, may continue for the popular cryptocurrency. Very bad news for MARA stock.

Renewed Focus on Fundamentals Could Drive Another Sell-Off

Currently, around 22.25% of Marathon Digital’s outstanding float has been sold short. Sure, not only are many MARA bulls well-aware of the stock’s high short interest. In fact, some could see this as a positive factor for shares.

With the short side so crowded, all it may take is a small bit of positive news to send MARA stock surging again. However, squeeze potential notwithstanding, if Bitcoin’s price performance is far less stellar in the months ahead, Marathon Digital’s fundamentals could come off the back burner, and back into focus.

As hinted above, chances are this is bad news for any long this stock. With the company reporting heavy net losses, and Marathon’s market cap ($3.95 billion) representing a nearly 400% premium to its reported BTC and cash reserves, shares are clearly overvalued.

The miner is taking proactive steps ahead of the halving event, but it is highly uncertain whether these will counter the impact of halving on crypto mining profitability. High net losses could persist, resulting in investors bidding down MARA shares. Losses could also trigger a capital raise. The resultant dilution would also put more pressure on the stock.

Bottom Line: There are Better Vehicles Out There for Bitcoin Exposure

Sure, much like gold mining stocks can produce returns that outpace that of spot gold prices during bull markets for the precious metal, the same applies here with crypto mining stocks during crypto bull markets.

However, this dynamic is a double-edged sword. A Bitcoin rally can spark big moves for stocks like MARA, but a bear or sideways market can drive big losses. Add in the potential for the halving event serving more as a headwind than as a tailwind for Marathon, and there’s one clear takeaway.

There are better vehicles out there for Bitcoin exposure. These include Bitcoin miners with stronger fundamentals. Even if upside potential is lower, a lower level of downside risk may make Bitcoin itself (whether directly or via an ETF) a much stronger investment opportunity.

Even if you’re bullish on Bitcoin, consider these vehicles first, and skip on MARA stock.

On the date of publication, Thomas Niel held Bitcoin. He did not hold (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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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