As the cryptocurrency market continues to reach toward setting an all-time high, blockchain miners – particularly Marathon Digital (NASDAQ:MARA) – appear awfully compelling. It’s an incredibly risky venture, to be sure. However, a fundamental correlation exists between crypto sentiment and crypto-related enterprises. Therefore, I am bullish on MARA stock as a possible derivative beneficiary of the virtual currency mania.
Options ‘Flow’ Into MARA Stock
Let’s just be brutally honest: the blockchain mining business is entirely dependent on the underlying blockchain asset market. When the sun is out, the car wash business has the potential to do well. When it’s raining…not so much. One only needs to consider the income statement of MARA stock, which ebbs and flows with the fortunes of crypto.
Of course, the reality of this correlation is that when virtual currencies enter a bearish cycle, MARA stock looks untenable. However, that’s not the case right now. With the upcoming Bitcoin (BTC-USD) halving event scheduled for April, the supply of said crypto should be impacted relative to blistering demand.
In turn, astute traders are likely betting on the principle of buy the rumor, sell the news. Looking closer at options flow data – which screens exclusively for big block trades likely made by institutions – it seems that the smart money anticipates a huge rally up to the halving event.
Specifically, despite MARA’s recent sharp volatility, the options flow screener picked up several major transactions with potentially bullish implications. One that stood out was a buy-to-open transaction for 334 contracts of the Mar 28 ’24 23.00 Call. On Tuesday, this contract featured a premium of $2.95. If MARA reaches $23 by the end of tomorrow’s trading session (March 6), options calculators (which utilize the Black-Scholes model to estimate contract value) predict a theoretical contract price of $3.29.
Just for context, MARA stock closed in the open market at $22.26. So, a move to $23 isn’t unreasonable. In the afterhours session at time of writing, it got up to $22.94.
High-Confidence Speculation
Again, it’s important to reiterate that MARA stock and cryptos remain incredibly speculative ideas. Arguably, we’re not talking about investing so much as we’re talking about legalized gambling. Nevertheless, the crypto space at this juncture offers high-confidence speculation.
Mainly, the catalyst is psychological. With Bitcoin recently inking a new high, it would be a true letdown if it didn’t expand on that momentum. With so much energy and excitement built into the halving narrative, the bulls are probably committed to seeing the original decisively secure $70,000 and beyond.
However, the secondary and crucial catalyst is the financial nihilism of Generation Z. As numerous resources point out, crypto investors skew young. As TipRanks contributor Yulia Vaiman noted, the COVID-19 pandemic helped spark interest in stock market speculation. By logical deduction, much of that sentiment spilled into cryptos.
Further, Gen Z retail investors have every reason to invest in speculative ventures like cryptos. The reason for the broader nihilism is that young people are effectively priced out of building wealth through traditional means (i.e., real estate). Therefore, if they want to have any hope of rising above the inflated post-pandemic muck, they must speculate in high-risk, high-reward ventures.
Previously, I must admit that I expressed skepticism regarding the resilience of virtual currencies, given their blatant risk profile: they don’t generate earnings, nor pay dividends, nor hire people. Instead, cryptos are – from what I can tell – instruments of almost pure speculation.
However, I failed to appreciate the rising spending power of Gen Z and its broader ethos. Further, young people in their early 20s have their backs against the wall when it comes to wealth building. Stated differently, they arguably have little choice but to speculate on cryptos.
Given that the blockchain ecosystem has taken on a savior complex, any dips prior to the halving look compelling. In turn, any dips in MARA stock also look compelling for speculators.
It’s Not About Valuation but About Psychology
In most if not all blue-chip securities, valuation is important. With MARA stock, it practically has no bearing whatsoever on the decision-making process. Sure, you can say that MARA trades for 16.48x trailing-year revenue. What does that even mean?
Personally, I would contend absolutely nothing. If cryptos do well, sales will rise. If not, they won’t. It sounds ridiculously simple, but again, the historical financial performance lays out this narrative quite clearly.
So no, MARA stock isn’t about valuation. Do you want value? Go look at an underappreciated consumer goods giant that pays a nice dividend. Here, we’re dealing with the psychology of euphoria: we’re betting that someone else will buy MARA at a higher price than we paid for it.
That’s it. If you don’t like that capricious framework, Marathon Digital probably isn’t right for you.
Is MARA Stock a Buy, According to Analysts?
Turning to Wall Street, MARA stock has a Hold consensus rating based on two Buys, three Holds, and one Sell rating. The average MARA stock price target is $23.83, implying 7.1% upside potential.
The Takeaway: MARA Stock Is Simply Sweet Speculation
If you haven’t received the memo, MARA stock represents pure speculation. When the underlying cryptocurrency market does well, Marathon Digital does well. Of course, the opposite is also true, which is why the blockchain miner is so risky. However, because of the demographic undercurrent of Gen Z’s financial nihilism, this is speculation that has substance. Therefore, MARA is an intriguing idea for those who can handle the heat.
