• MARA’s name is misleading

• Explosive price action in the stock

• Still, way below the all-time high- Massive trading volumes

• An ETF product in digital currencies

• Gravity can be a powerful force in the crypto “growth” stock

A pick and shovel investment play on an asset class is a company that benefits from the ascent of the underlying market. In commodities, mining companies that produce copper and other base metals tend to make more money as the nonferrous metals’ prices move higher. Bear markets for metal prices cause earnings pressure.

Higher gold causes gold mining and exploration companies to soar, often outperforming the yellow metal’s price. In agricultural commodities, rising grain and soft commodity prices often cause fertilizer and agribusiness equipment company shares to explode higher. Over the past months, rising commodity prices have taken many pick and shovel stocks to highs because of increasing inflationary pressures.

Marathon Patent Group, Inc. (MARA) has become a pick and shovel play on Bitcoin and the other over 8600 members of the asset class in the burgeoning digital currency world. MARA shares have exploded over the past weeks and months as Bitcoin futures rose to their record $58,610 peak in February.

MARA’s name is misleading

Marathon Patent Group (MARA) operates as a digital asset technology company that mines cryptocurrencies. MARA focuses on the blockchain ecosystem and the generation of digital assets. MARA’s headquarters is in Las Vegas, Nevada. The company has been around since 2010 but operates its proprietary data center in Hardin, Montana. MARA has a maximum power capacity of 105 Megawatts and owns 2,060 advanced ASIC Bitcoin Miners at a North Dakota co-hosted facility.

On February 21, 2021, MARA announced a name change, reflecting its core competency; “mining cryptocurrencies and investing in digital assets.” In the press release, MARA said it purchased $150 million worth of Bitcoin and 103,060 of the industry’s premier Bitcoin miners intending to become North America’s largest and most efficient miners.

The new name, Marathon Digital Holdings, will replace Marathon Patent Group, as the name was misleading as it reflected a portfolio of intellectual property rather than digital currency assets.

Recent explosive price action in the stock

On November 10, MARA shares traded to a low of $2.06. On that day, Bitcoin was at the $15,845 per token level. Since then, Bitcoin more than tripled in value to nearly $50,000 level as of Thursday, March 4. MARA shares have done even better.

Source: Barchart

As the chart shows, MARA rose to a high of $49.41 per share on February 17 as March Bitcoin futures were on their way to the recent record high of $58,610 on February 22. MARA was trading at the $32.69 level on March 4, nearly sixteen times higher than the November 10, 2020 low.

Still way below the all-time high- Massive trading volumes

The recent high in MARA shares is still considerably below the stock’s all-time peak.

Source: Barchart

The chart illustrates the record peak in MARA shares in March 2012 at $234.00. The stock made lower highs and lower lows in March 2020 when Bitcoin hit bottom at $4.210 per token and MARA traded to 35 cents per share. Over the past year, MARA experienced explosive growth.

An ETF product in digital currencies

MARA’s market cap was just over $3 billion on March 4. As a pick and shovel company out there digging in cyberspace for Bitcoin and other cryptocurrencies, the company’s stock is attracting lots of attention and trading volume. An average of almost 40 million MARA shares changes hands each day.

In the world of commodities, mining stocks tend to outperform the underlying raw materials on the upside and underperform during bear markets. MARA’s price performance makes the stock act as both an ETF for the digital currency and a producer of Bitcoins. The bull market action turbocharged MARA, making it perform like a leveraged ETF product.

MARA’s price performance has made the stock a darling for crypto speculators and analysts.

Source: Yahoo Finance

The chart shows that five of six analysts on Yahoo Finance rate the stock a buy or outperform. Only JP Morgan has an underweight ranking. A few short years ago, in 2017, Jamie Dimon, the bank’s CEO, called Bitcoin a “fraud.”

Gravity can be a powerful force in the crypto “growth” stock

Bull markets often take the price of an asset far higher than market participants to believe possible. Bullish trends can push a price to irrational, unreasonable, and illogical prices. Conversely, bear markets tend to do the same on the downside.

The move-in Bitcoin over the past months has been nothing short of parabolic. MARA’s performance magnifies the price action in the leading digital currency. Some analysts believe Bitcoin is heading for $100,000 per token or higher. Others think it is worthless. Warren Buffett, one of the world’s most respected value investors, continues to call digital currencies “financial rat poison squared.”

Parabolic markets often run into one of nature’s most powerful forces, gravity. MARA may be a combination of a digital currency mining stock, an ETF surrogate for the cryptos, and a hot speculative growth stock. However, the potential for evaporation of value remains high. Meanwhile, miners carry idiosyncratic risks, including management and specific mining properties. MARA’s Bitcoin portfolio will make it trade with the crypto’s price, but future growth depends on its ability to mine more tokens.

MARA is a trading rather than an investing stock in the wild digital currency world, but it is a pick and shovel play even if the picks and shovels exist in the cyberworld.

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MARA shares were trading at $33.30 per share on Thursday afternoon, down $3.32 (-9.07%). Year-to-date, MARA has gained 218.97%, versus a 2.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...

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