With Blockchain Stocks, It’s Time to Rush for the Exits

Frankly, when the Federal Reserve announced that inflation was out of control and that it needed to correct skyrocketing prices through raising the benchmark interest rate, the writing was on the wall for blockchain stocks. True, the underlying cryptocurrency market generated much excitement last year. However, the narrative needs an emotional and guttural catalyst to thrive. Without it, the entire industry faces a severe correction.

For individual players, that correction may turn out to be a complete collapse. Now, it’s possible that sector leaders such as Marathon Digital (MARA) can weather the storm, staying afloat long enough for the next (possible) upside wave in cryptos to materialize. However, it’s not going to be an easy ride from now until the sector resurgence, which is not a guaranteed event to be clear.

As the AP reported on Nov. 9, “Cryptocurrency prices plunged for a second-straight day after crypto exchange Binance said it was pulling out of a deal to purchase failing rival FTX Trading.” Most digital assets sank to two-year lows as confidence utterly evaporated in the once-hot segment.

For MARA stock specifically, it faces major viability concerns. Earlier this week, Marathon reported third-quarter revenue of $12.7 million, well shy of the consensus target of $23.4 million, per FactSet data. Even more ominous, in Q3 of last year, Marathon rang up $51.7 million in sales. This translates to a year-over-year loss of more than 75%.

And with cryptos suffering awful news in the month of November, it’s fair to say that most folks have sharply reduced expectations for Q4. Thus, blockchain stocks are encountering and will continue to encounter credibility questions.

Indeed, many traders aren’t waiting around, seeking to exploit the downturn.

Unusual Options Activity Targets Blockchain Stocks

After the closing bell rang out to cement the Nov. 9 session in the books, Barchart.com’s screener for unusual options activity noted peculiar dynamics with MARA stock. Traders targeted the $8.50 put options with an expiration date of Nov. 25, 15 days from the time the order was placed.

Volume for the transaction reached 3,522 contracts against an open interest reading of 156. The bid-ask spread as represented by the midpoint price (95 cents) came out to 13.68%. Typically, wide spreads indicate low liquidity. In addition, market makers give themselves a broader safety margin for trades that are difficult to place.

For the record, MARA stock closed at $9.61 in the open market on Wednesday. Since the beginning of this year, shares dropped nearly 71% of equity value.

Based on data from Barchart.com, the current sentiment in the options arena for MARA stock is unsurprisingly negative. Its put/call open interest ratio stands at 0.90. Usually, the threshold that separates bullish and bearish sentiment is 0.70, with figures higher than this indicating that more traders are acquiring puts than calls.

What may catch some market observers off guard, though, is analyst sentiment. Despite the troubles associated with MARA stock and the underlying sector, analysts maintain an overall bullish assessment. However, three months ago, Wall Street experts pegged Marathon as a “strong buy.” This month, the consensus rating dipped to “moderate buy.”

The Paradigm Has Shifted

Given the dramatic rise in market value of both cryptos and blockchain stocks, it’s possible that analysts don’t want to miss out on the next big rally. After all, digital assets slipped in the spring of last year. But from July through early November, the sector stormed to all-time highs. Therefore, logic dictates that MARA stock and its ilk can fly higher eventually.

Unfortunately, the logic here may be flawed and that’s because of the real M2 money stock. When the crypto segment dropped from May through the second half of July last year, the money stock also saw a decline. During the aforementioned months, this stat dipped 0.37%. From July through November, the money stock increased 1.2%.

In other words, when the monetary system becomes inflationary, cryptos respond accordingly. But when the system turns deflationary, the narrative becomes utterly heinous. Because the Federal Reserve appears committed to its hawkish monetary policy, it’s likely that cryptos will drop even more before the market improves.

Stated differently, when it comes to blockchain stocks, investors should turn off what any crypto pundit has to say (including yours truly). Instead, your barometer – arguably your only barometer – is the Fed. If it wants to kill inflation, cryptos will almost surely plummet as collateral damage.

• Will a Possible Fed Loosening Help the Cryptocurrency Sector?
• Some Signs of Bullish Life in Bitcoin and Ethereum
• Will a Possible Fed Pivot Boost Crypto Miner Marathon Digital (MARA)?
• Crypto Slumber- Buying the Dip with BITQ