Bitcoin (CCC:BTC-USD) shows no signs of slowing down, smashing past $52,000 last month. Understandably, interest is sky-high in digital currency, and several stocks are soaring on the coattails of the frenzy we see right now. Against this backdrop, it starts to clarify why Marathon Digital Holdings (NASDAQ:MARA) stock is doing so well. Shares are up 467% in three months, and the momentum will not stop until we see the Bitcoin streak snapping.
However, that is not to say that MARA stock doesn’t come with risks. It remains a playground for day traders — people who time their entries and exits per the latest crypto news.
Fundamentals do play a key role in any company’s future. However, when it comes to crypto, these things don’t seem to factor in as much. Instead, the focus is distinctly on Bitcoin prices and their movements.
Investing in a crypto miner is an excellent way to hedge your bets. But there is a larger argument that maybe it’s better to go ahead and invest in Bitcoin itself, rather than a pick-and-shovel play. I guess it depends on the kind of investor you are.
Several digital currencies and stocks like MARA are progressing in Bitcoin’s shadow. If you believe in the industry’s future long-term, you should buy Marathon now and hope that it stays the course since it’s a capital-intensive industry. However, if you want the lightning rod of the space, it’s better to place your bets on Bitcoin.
External Catalysts Are Pushing MARA Stock Upward
Marathon Digital has the aggressive aim of becoming the biggest crypto-miner in America. Marathon CEO Merrick Okamoto forecasts the company could mine 55 to 60 Bitcoins daily once full capacity is reached. At current Bitcoin prices, it translates to a revenue of approximately $94 million for a month. I don’t want to project the earnings further, because Bitcoin prices are so volatile.
In 2020, we saw unprecedented institutional interest in digital currency. A few years back, crypto was still seen as an obscure investment vehicle, but not anymore. It has become so ubiquitous that it’s forcing Bank of New York Mellon Corp. (NYSE:BK), the nation’s oldest bank, to finally accept the digital currency. But there is a flip side to all this as well. Institutional investors will be the first to bail if the Bitcoin story goes south. They do not function in the same way as retail traders, who are willing to hold on for another rally. With that in mind, MARA becomes a safer bet to play the industry.
Recently though, the gain in MARA’s stock price is down, due in large part to the gain in Bitcoin prices. Its sharp rise on March 1 was completely due to Bitcoin, and so the surge occurred right when the company changed its name. So it’s speculation, rather than earnings reports, that is pushing the stock upward.
Citi (NYSE:C) has said that Bitcoin is reaching a “tipping point.” It can either become the preferred currency for international trade or face a “speculative implosion,” in Citi analysts’ words. Hence, it’s a dangerous game to play. But when the digital currency has already surged to a $1 trillion market capitalization, you cannot blame investors for wanting to test the waters.
Mostly a Spec Play but a Better Option Than Most
Any stock that has reached such dizzying heights as MARA cannot be trading on fundamentals. Its price movements are underpinned by a high degree of speculation, but that is where we find ourselves these days.
Stocks linked to Bitcoin do not respect technical signals or fundamentals. Hence, breakouts are the norm in this space. Considering all these factors, MARA stock becomes an enticing prospect to play the Bitcoin space. It’s still early for anyone to classify it as the next Coca-Cola (NYSE:KO) or American Express (NYSE:AXP). For that, you need a track record of consistently excellent metrics and a solid operating business model.
At the moment, companies like MARA are looking to sell equity to shore up cash for future investments. Crypto mining equipment is not cheap, and the process is not getting any easier. The real test will come once Bitcoin prices cool off a bit. At that time, your investment in MARA will get tested. Management will have to navigate that time effectively to emerge a winner. However, for now, MARA stock remains a safe way to play the Bitcoin surge.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.