If one enterprise existed that absolutely did not need another headwind to deal with, it would be Marathon Digital (NASDAQ:MARA). A blockchain mining specialist, Marathon performed astonishingly well throughout most of 2021. Of course, that was when the underlying cryptocurrency sector enjoyed its own remarkable bull run. Unfortunately, the segment’s collapse boded poorly for virtually all crypto-related enterprises. I am regrettably bearish on MARA stock.
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Fundamentally, the caveat “regrettably” should always define generally reputable blockchain miners. On the surface, the severe 82% decline in MARA stock on a year-to-date basis would ordinarily suggest catastrophic incompetence within the impacted enterprise’s leadership team. In Marathon’s case, though, the core business just happens to be (extremely) cyclical. It’s just not the right time for MARA.
Put another way, a deflationary environment of low economic activity and rising interest rates would be detrimental to real estate. Of course, it’s not that the sector is irrelevant. Rather, people need robust catalysts – primarily high-paying jobs – for home purchases to make sense.
For MARA stock, the main catalyst is high interest and demand for cryptos. Sadly, though, digital assets may have further to fall. As I demonstrated earlier, it appears that the benchmark crypto price shares a strong direct correlation with the real M2 money stock. Put another way, inflation (or the gradual erosion of purchasing power) incentivizes crypto acquisitions.
This dynamic makes sense. Since holding onto dollars in an inflationary environment will only lead to guaranteed wealth erosion, it’s better to do something with your cash. However, in a deflationary environment, the opposite is true: purchasing power rises, thus guaranteeing wealth expansion (with all other things being equal).
Subsequently, the Federal Reserve’s commitment to raising the benchmark interest rate poses problems for cryptos and, thus, MARA stock. Unfortunately, this circumstance might worsen, thanks to the recent November jobs report.
Hot Employment Data Could Sink MARA Stock
As TipRanks reporter Kailas Salunkhe stated, “the latest print from the Labor Department shows the U.S. economy added 263,000 new non-farm jobs, and the headline unemployment rate remained steady at 3.7% for the month of November.” Most worryingly, this result came in hotter than expected.
“The figure was better than the Street’s expectations of 200,000 new job additions, with major job gains in leisure and hospitality, healthcare, and government,” added Salunkhe. “Sectors including retail trade, transportation, and housing, on the other hand, witnessed declines.”
Under normal circumstances, this undercurrent would probably augur well for MARA stock. More people having jobs may equate to greater speculation for cryptos. Unfortunately, the Fed must deal with escalating prices lest current economic conditions become unsustainable for working-class America.
Therefore, it’s probably a safe bet that higher and more aggressively frequent rate hikes will materialize throughout 2023. Adding credibility to this speculation is James Bullard, president of the Federal Reserve Bank of St. Louis. According to the Associated Press, Bullard believes the central bank must raise benchmark rates higher than previously projected to get inflation under control.
Further, the Fed’s already aggressive hawkish policies should have dented growth in the labor market. This means policymakers must take the gloves off to really kill inflation. While such a proposition may be good for economic stability in the long run, it will almost surely hurt MARA stock in the near term.
Is MARA a Good Stock to Buy?
Turning to Wall Street, MARA stock has a Moderate Buy consensus rating based on three Buys, two Holds, and zero Sells assigned in the past three months. The average MARA price target is $17.75, implying 234.27% upside potential.
Quantitative Data Also Clouds Marathon Digital Stock
For Marathon Digital, one of the biggest problems centers on its profitability metrics. MARA’s gross margin is negative, which means that the company has zero flexibility in terms of advantaging economies of scale. Beyond this metric, Marathon’s operating and net margins are also stained in a dark crimson tone. It’s not surprising because, again, the enterprise depends on crypto market valuations. Without bullishness in the underlying sector, MARA stock loses all fundamental relevance.
To state the matter clearly, should the crypto sector rise again (and assuming Marathon is still around), the business will likely experience rejuvenation. Absent this catalyst, though, it’s difficult to see MARA stock avoid the volatility that has severely damaged blockchain-related enterprises during the past year. Therefore, conservative investors should steer clear.
