Why Marathon Digital Stock Has Fallen Over 20% Today


What happened

Cryptocurrency Miner Actions Marathon Digital Holdings (NASDAQ: MARA) had fallen more than 20% by late Monday afternoon, wiping out almost all of the gains it had seen since the start of the month in one fell swoop.

Since Marathon is primarily a Bitcoin (CRYPTO: BTC) Minor, this rising cryptocurrency price environment has been bullish for the stock. Investors tend to view cryptocurrency miners as an effective way to boost digital token prices. Much like precious metal miners, cryptocurrency mining companies offer investors leverage over the prices of underlying commodities in a way that can amplify returns.

But today’s price action seems to have little to do with where cryptocurrency prices are located. On the contrary, investors seem to be taking into account a significant capital increase that the company announced today.

So what

What is the size ? Well, Marathon’s senior unsecured convertible debt offering could fetch up to $ 575 million, if fully subscribed. This is a very significant change for a company with a market capitalization now below $ 6 billion.

Investors clearly seem to dispute this offer. Part of that feeling could certainly be attributed to her size. Such a large convertible debt supply potentially changes the capital structure of the company permanently.

But the fact that this was done via convertible debt rather than an equity offering seems to worry some investors. Those with convertible notes will be paid regardless of the share price. Thus, the lack of full participation by large investors in what many see as a stock with huge upside potential worries some small retail investors.

Now what

Marathon is a cryptocurrency miner that many believe is in need of raising capital at some point. Compared to its peers, Marathon was viewed as relatively under-capitalized. The company has a huge amount of Bitcoin on its books, but has been hesitant to sell it to finance its growth.

The company intends to use the funds from its convertible debt offering to purchase additional Bitcoin miners and Bitcoin itself. As a result, investors might be reluctant to view Marathon as a company poised to buy Bitcoin, especially near all-time highs.

Right now, the Marathon share price is starting to look ugly. Indeed, it will be a stock to watch this week and in the weeks to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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