Should You Buy the Dip on Riot Blockchain and Marathon Digital Holdings?

Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT) are two crypto miners which have endured heavy losses in the past couple of weeks. Should you buy the dip? Andy Hecht breaks it down.

  • The Coinbase IPO was a significant event

  • Digital currencies continue on a parabolic path

  • China is looking to roll out a digital currency- The Chinese are ahead of the pack

  • Riot Blockchain mines for cryptocurrencies

  • Marathon Digital Holdings  is also a digital asset miner

I have been trading in the commodities and financial markets for the past four decades. I have never seen any asset class take off like the cryptocurrencies. Bitcoin was at six cents in 2010. Eleven years later, the price of the leader of the asset class reached its most recent high at $65,520 per token. A $1 investment in Bitcoin in 2010 was worth nearly $1.1 million at the recent peak.

When I lived in New York City, the slogan for an ad for the lottery was “all you need is a dollar and a dream.” Considering that a $1000 investment in Bitcoin in 2010 would make the investor a billionaire, there have been few if any markets that have ever offered similar returns.

Riot Blockchain (RIOT) and Marathon Digital Holdings (MARA) are two quasi-technology companies mining for cryptocurrencies. The shares tend to move higher and lower with Bitcoin and other digital currencies. Until the SEC approves ETF and ETN products on the sector, RIOT and MARA continue to serve as proxies for the emerging asset class exhibiting parabolic growth.

The Coinbase ETF was a significant event

The Coinbase (COIN) listing was a great success. The reference price before the listing was $250 per share. On April 14, the shares opened at $381.

Source: CQG

As the chart shows, COIN traded to a high of $429.54 on April 14 as a frenzy of buying pushed the company’s market cap to the $100 billion levels. Coinbase is a trading and investment platform. At the high, the company’s market cap was higher than the Chicago Mercantile Exchange’s (CME) and the Intercontinental Exchange’s (ICE). The CME and ICE are well-establish platforms that offer products across all asset classes. COIN’s platform is strictly for digital currencies.

COIN will profit from trading volumes in the cryptocurrency asset class. The company does not pick winners; it will grow and thrive with the overall asset class over the coming years. COIN shares dropped to settle at the $291.60 level on April 23 as digital currencies declined. Fears of increasing US capital gains taxes may have weighed on the cryptos as the recently minted millionaires and billionaires face a much higher tax bill.

Digital currencies continue on a parabolic path

The rise of digital currency values has been nothing short of explosive. Each new high tends to come with a market event that moved the cryptos further down the road towards mainstream assets. In 2017, the CME listed Bitcoin futures, pushing the price of the leading token to over $20,000 for the first time. The asset class’s market cap moved to the $800 billion levels.

As companies invest and accept the crypto’s prices have moved higher. Square (SQ) and Tesla’s (TSLA) investments and acceptance of the tokens in late 2020 and early 2021 pushed prices higher. On February 8, the CME listed Ethereum futures, pushing the price of the second-leading digital currency to new highs. The Coinbase listing (COIN) was the next event that caused a continuation of parabolic gains.

Source: CQG

Bitcoin reached its most recent high at $65,520 on April 14, the day of COIN’s listing before correcting.

Source: CQG

Ether tokens rose to a record $2,654.50 on April 22. At the end of last week, Bitcoin pulled back to the $50,565 level, and Ether was trading at around $2332.50 per token. COIN shares were at the $291.60 level.

China is looking to roll out a digital currency- The Chinese are ahead of the pack

Most of the members of the digital currency asset class are “defi” means of exchange. Decentralized finance means that values resulting from bids and offers in a free market. Governments, central banks, and monetary authorities cannot manipulate their prices. The asset class is a libertarian approach to money.

Meanwhile, governments are looking to roll out digital currencies to take advantage of blockchain technology. China is the leader, with a digital yuan on the horizon. The world’s second-leading economy has already been testing the digital yuan domestically. China’s currency has not been fully convertible because of government controls. However, leadership in Beijing wishes to challenge the dollar and the euro’s positions as the world’s reserve currencies. Strategically, a digital US dollar and digital euro are likely to emerge soon. Technology is changing the world's dynamics, and governments need to keep up with the innovations.

The next events that could propel Bitcoin, Ethereum, and other digital currencies to even higher highs could be the introduction of mini and micro futures contracts and ETF and ETN products that increase the asset class’s addressable market. However, these days, proxies for digital currencies that rise and fall with their prices are few and far between. RIOT and MARA are two companies that have worked as proxies for the asset class. However, as new tools come to market, we could see interest in RIOT and MARA decline.

Riot Blockchain mines for cryptocurrencies

RIOT is a Colorado-based company that operates a cryptocurrency mining operation in North America. RIOT primarily focuses on Bitcoin mining. RIOT has a market cap of around $3.665 billion at $38.48 per share. The proxy for Bitcoin trades an average of over 28.6 million shares each day, reflecting the rising interest in the cryptocurrency.

Source: Barchart

The chart shows RIOT hit a recent high of $79.50 per share on February 17 as Bitcoin futures were on their way to a record $59,410 high on February 22. RIOT had been highly correlated with Bitcoin’s ascent until late February, but the correlation declined during the subsequent highs that took it to over the $65,000 level. Ethereum futures and COIN shares, and other lower-priced tokens are likely taking some of the wind out of RIOT’s sails as a Bitcoin proxy.

Marathon Digital Holdings is also a digital asset miner

MARA is a Las Vegas, Nevada-based digital currency mining company with a $3.589 billion market cap at $32.30 per share at the end of last week. MARA trades an average of over 25.3 million shares each day.

Source: Barchart

The chart shows that MARA has done a better job as a proxy than RIOT over the past weeks as it reached its most recent high of $57.75 per share on April 6. However, as Bitcoin soared to the $65,520 level on April 14, MARA was below the $51 level.

RIOT shares have been trading since 2003 before Bitcoin existed. MARA shares have been around since 2012. Both companies repurposed their focus on digital currencies. Over the past months, they have served as proxies for the asset class for people looking for tools listed on the stock exchange. COIN could replace them as the company has a direct interest in volumes traded in the overall asset class.

ETF and ETN products or micro and mini futures are the next prospects that could cause another leg higher in the parabolic digital asset class. At the $1.879 trillion levels, there is room for growth. RIOT and MARA are likely to lose their crypto mojo as more products burst on the scene. The most significant event could be when a government issues the first digital token as regulations could follow for the entire asset class.

Use caution when trading or investing in RIOT and MARA, as their golden days could be in the rearview mirror.

RIOT shares were trading at $40.76 per share on Tuesday morning, down $0.13 (-0.32%). Year-to-date, RIOT has gained 139.91%, versus a 11.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles.


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