Billed as a digital asset technology firm, Marathon Digital (MARA) aims to build the largest cryptocurrency mining operation in North America. Naturally, MARA stock was one of the biggest beneficiaries of the new normal as retail investors piled into speculative but promising enterprises. With cryptos becoming one of the hottest sectors in town, Marathon took off on a blisteringly fast sprint.
Indeed, the numbers speak for themselves. When the COVID-19 crisis initially capsized the global economy, MARA stock found itself trading in literal penny stock territory during the spring doldrums of 2020. At that point, few would even consider touching shares with a 20-foot pole. But at the peak of its power and influence, MARA was knocking on the doorstep of $80 a pop.
That was back in November of last year. Since then, the turmoil in MARA stock has been nothing short of catastrophic.
For instance, on a year-to-date basis through the end of the July 20 session, Marathon shares hemorrhaged 62% of market value. According to Barchart.com’s assessment of key technical gauges, it deems MARA stock (at time of writing) as a 56% sell. While short- and medium-term indicators are somewhat more optimistic, the longer-term indicators are comprehensively bearish.
At the same time, analyst ratings are mostly optimistic about MARA stock, with the average rating among seven analysts assessing the investment as a “strong buy.” This dichotomy between clashing sentiments also carries over into the options market.
MARA Stock Stuck in a Tug-of-War
When the closing bell rang out on the July 20 session, MARA stock was the subject of unusual options activity; specifically, four contracts caught the eye of Barchart.com’s screener for trading action moving beyond normal levels.
First, on the bullish side, traders piled into the $18 calls and $12.50 calls, featuring expiration dates of July 29, 2022 and March 17, 2023, respectively. In the former case, volume reached 4,305 contracts against an open interest reading of 213 while with the latter, volume was 1,546 and open interest was 123.
As represented by the midpoint price, the bid-ask spread for the nearer-expiration call was 8.3%. For the longer-expiry call, the spread came out to 7.3%. While not particularly wide, the spreads for both are not exactly the narrowest. Usually, market makers prefer to stay competitive with narrower spreads. However, they must widen their safety margin if the underlying security is volatile or difficult to peg properly.
On the transactions with bearish implications, traders acquired two put options, both with a strike price of $13. However, the difference is in the expiration date, with one expiring soon on July 22 while the other is not far behind, expiring July 29. For the former put, the spread came out to 5.13% while the latter was 3.3%, implying greater confidence among market makers to facilitate (or hedge against) bearish bets.
Near-Term Momentum Against Longer-Term Ambiguities
As exciting as MARA stock may be at the moment, it’s a classic case of many traders piling into the sentiment of the moment without apparently considering longer-term implications. Anybody interested in engaging this trade must do so extremely carefully.
Mainly, the broader cryptocurrency sector has experienced a significant increase in bullish trading activity. After languishing in the total market capitalization level of around $940 billion to $960 billion for several weeks, cryptos have finally popped their head above the $1 trillion mark, a first since early June of this year.
Naturally, this dynamic has many embattled crypto investors excited, with MARA stock alone popping up 65% over the trailing five days. But is this near-term rally sustainable?
Over the longer run, cryptos may have further to fall before they swing back higher. One glaring negative catalyst is Tesla (TSLA). Previously, Tesla CEO Elon Musk championed virtual currencies. Now, news comes out amid the disclosure of the company’s second quarter of 2022 earnings report that it sold off a massive chunk of its crypto holdings – at a loss, no less.
Setting aside Tesla, the harsh reality is that the purchasing power of the dollar is rapidly fading. Since the beginning of the COVID-19 crisis, the erosion of currency strength equates to nearly 13 cents on the dollar. At scale, such a hidden tax on people’s cash holdings and income will naturally pressure speculative assets like cryptos.
The Sideline is Comforting
While bulls and bears are aggressively targeting MARA stock, the best seat in the house may be on the sidelines, watching the action from a safe distance. True, each side has its own set of distinct arguments to bring forward. However, the economy may be the ultimate arbiter – and the diminishing strength of the dollar against its own past benchmarks don’t bode particularly well for growth-centric investments.
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