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Is Marathon Digital Holdings Stock a Buy? – Motley Fool

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Returns as of 11/18/2021
Returns as of 11/18/2021
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Marathon Digital Holdings(NASDAQ:MARA) stock plunged 27% on Nov. 15 after the Bitcoin (CRYPTO:BTC) mining company made two surprising announcements. First, it announced an upsized $650 million convertible senior notes offering to fund its purchases of additional Bitcoin miners. Second, it disclosed a Securities and Exchange Commission (SEC) subpoena that requested documents related to its data center contracts in Hardin, Montana.
Those two revelations dampened the market’s enthusiasm for Marathon’s stock, which had risen more than 3,000% over the past 12 months as it purchased and mined more Bitcoins. But could this pullback represent a rare buying opportunity for investors who can stomach the near-term volatility?
Marathon was once a patent holding company that bought patents, sat on them, and generated revenue through licensing deals and litigation. But last year it rebranded itself as a Bitcoin mining company and placed a long-term order for more than 100,000 high-end ASIC miners from Bitmain.
Image source: Getty Images.
At the end of 2020, Marathon only held 126 Bitcoins. But in March it purchased an additional 4,813 Bitcoins for $150 million at an average price of $31,168 — which is well below its current market value of nearly $61,000.
Marathon operated 27,280 miners at the end of October, and it expects to expand its fleet to 133,000 miners by mid-2022. But those miners cost more than $10,000 each, and Marathon expects to remain unprofitable as it takes on more debt to fund those purchases.
Last year, Marathon only generated $4.4 million in revenue and posted a net loss of $10.4 million. But in the first nine months of 2021, its revenue skyrocketed to $90.2 million as its expanding fleet of miners produced more Bitcoins. By the end of October, it held 7,453 Bitcoins — which have a current market value of approximately $454 million — and $20.9 million in cash.
However, Marathon also posted a net loss of $47.7 million during the first nine months of 2021, even after booking a $58.8 million gain from its investment in Stone Ridge’s Bitcoin-oriented NYDIG fund. Excluding that gain, its operating loss of $106.7 million indicates the company is still spending more than two dollars for every dollar of Bitcoin revenue it generates.
The bulls believe Marathon’s losses will narrow as its scale improves and Bitcoin’s price continues to rise. Meanwhile, the bears believe Marathon’s losses could easily overwhelm its liquidity, its returns are wildly unpredictable, and that its stock is too richly valued at more than 30 times this year’s sales.
Marathon’s $650 million senior convertible debt offering (which was increased from $500 million) isn’t surprising, since it’s burning a lot of cash to expand its mining fleet. These new notes will mature on Dec. 1, 2026, bear an annual interest rate of 1%, and have an initial conversion rate of $76.17 per share — which is nearly 40% above its current market price.
Investors generally dislike convertible debt offerings because they increase a company’s leverage while potentially diluting its equity. However, Marathon’s debt-to-equity ratio hovered near zero at the end of the third quarter, and that ratio will likely remain just below 1.0 after it closes the offering. Therefore, investors who believe in Marathon’s long-term expansion plans shouldn’t worry too much about its convertible debt offering.
As for the SEC subpoena, it’s related to Marathon’s deals with Beowulf Energy and other parties to build a data center in Hardin last October. In particular, the agency is investigating Marathon’s issuance of six million shares of restricted common stock to fund those deals — which notably granted it favorable energy rates through a joint venture with Beowulf — and if they violated any security laws. This investigation could cause problems for Marathon, since it relies on Beowulf’s lower energy prices to mine Bitcoin at cost-efficient rates.
If you’re a big believer in Bitcoin, Marathon Digital’s stock might still be a great investment in the cryptocurrency’s future. The convertible debt offering supports its long-term expansion plans, and it could become one of the world’s largest pure-play Bitcoin miners if it achieves its expansion targets next year.
Marathon’s stock isn’t cheap, and the SEC subpoena could certainly generate unpredictable headwinds. But over the long term, I think Marathon will continue to grow like a weed if Bitcoin’s price continues to rise.
Therefore, I believe Marathon could be worth buying as the debt offering and SEC subpoena weigh down its stock. However, investors should fully understand the risks before buying this “all in” play on the Bitcoin market.

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ETC Labs believes regulation is the key to preventing future 51% attacks – Cointelegraph

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US banking regulators are looking to clarify crypto rules in 2022 – The Verge

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One of them is already working to make banks’ responsibilities clearer
The Federal Reserve, Federal Deposit Insurance Corporation (or FDIC), and Office of the Comptroller of the Currency (OCC) have issued a joint statement announcing a plan to clarify the rules and regulations around how banks can use cryptocurrencies over the next year (via Bloomberg).
The agencies say they’re focusing on setting expectations for what banks can do when it comes to holding crypto, allowing customers to obtain crypto, issuing their own stablecoins (or cryptocurrencies whose value is tied to a fiat currency like the US dollar), and taking crypto as collateral for loans and keeping it on their balance sheets. According to the letter, the goal is to make sure consumers are protected and that banks act responsibly. The regulators also say it’s an attempt to make sure the financial industry isn’t used to launder ill-gotten currency, something the Treasury Department has been focusing on recently.
The OCC has already made moves in this direction — on Tuesday, the acting comptroller released a letter clarifying decisions that the office had made throughout 2020 and early 2021. Now, the letter says, banks will have to ask permission from regional regulators before getting into certain crypto fields.
Previously, the Comptroller said banks were allowed to hold cryptocurrencies for customers as well as assets being used to back stablecoins. Banks were also told they could use stablecoins and act as nodes on blockchain networks. While financial institutions will still be able to carry out these activities, they’ll have to be able to prove to regulators that they can do so safely and responsibly.
These announcements come as some crypto companies have skirmished with regulators over what legal classifications their products fall under. Recently, Coinbase canceled its Lend program after a public feud with the Securities and Exchange Commission over whether what it was selling counted as securities (and would therefore fall under heavier legal scrutiny). The Treasury has also proposed that large cryptocurrency transfers be reported to the Internal Revenue Service, and has asked Congress to start regulating stablecoins.
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Altcoin Roundup: 3 signs that show crypto mass adoption is underway – Cointelegraph

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