Bitcoin (BTC-USD) has been an absolute rocket this year. This is despite a fairly significant consolidation that has been underway since mid-April. Of course, that kind of action requires a number of stocks, including those that mine Bitcoin for a living.
One such name is Marathon Digital (NASDAQ: MARA), which also rose sharply this year, but has stalled since mid-April.
Today, the stock has been in a very tight range since mid-April, which, coincidentally, started when Bitcoin started consolidating and Marathon looks good, but avoiding taking a position until it breaks out of the range, it is obvious that big consolidations generate big moves.
Marathon’s consolidation is almost two months old now and it can be seen that it has been extremely tight. The range is approximately $8.50 to $10.75, and the stock at the lower end of that range was found after Monday’s action.
Bitcoin and Bitcoin-related stocks go through boom and bust cycles often, and it is expected that the move out of this consolidation range to be massive. That would be true only because of the long consolidation, but this stock also has about a quarter of the short float. That will exacerbate the next move, either up or down, so buckle up if you have a position.
Marathon lost ~74% of its value relative to Bitcoin at the end of last year but has gained 75% (from a very low base) so far in 2023. That means investors are paying more attention today to Marathon’s Bitcoin than they were in January this can be so because the stock looks cheap relative to Bitcoin, but it is one more thing to keep in mind. However, things get a little more complicated when we look at the currency itself.
Bitcoin is getting into a pretty ugly descending triangle, and the momentum indicators are unmistakably weak. There is a critical support zone of just over $25k, which is where it is now. If that breaks to the downside, look below; as we could see a quick test of $21k in short order. If that happens, everything I said about Marathon coming out of its consolidation is null and void. If Bitcoin breaks down, just get out of Marathon or anything else Bitcoin-related that you own.
That sounds pretty awful, and that’s because it seems to be a big risk although there is not a breakdown yet, but if there would be, all bets are off. To counter that, it can be said that the money is turning bullish on Bitcoin this year, with the coin’s relative performance versus the S&P 500 and Nasdaq.
That outperformance changed in April when Bitcoin outperformed, and it has underperformed significantly since then. But this happens all the time, and time will tell whether this is a consolidation before a new up move or the start of another bear market in the OG altcoin.
Marathon is Struggling
Marathon has seen its stock price completely destroyed over the past two years, but that’s for good reason. The company was basically printing money during the time when Bitcoin hit all-time highs, but today it’s a far cry from that.
Bitcoin production looks great and capacity continues to increase. However, volume is only one piece of the puzzle. The second piece, and arguably the most critical, is margins.
The company needs higher prices to more easily fund operating costs, but it also has 3,100 unrestricted coins on its stability sheet, which equates to about $80 million at current prices.
By Marina Meza
