Shares of bitcoin mining company Marathon Patent Group (MARA -9.39%) were plummeting on Wednesday, although there wasn't any company-specific news to report. The downward move is likely related to the price of bitcoin, which is down today, as well. As of 11:45 a.m. EST, Marathon stock was down 13%.
According to CoinDesk, the price of bitcoin has fallen 8.5% over the last 24 hours. On one hand, cryptocurrencies remain a volatile asset class, so predicting day-by-day moves is nearly impossible.
Some might point to President Joe Biden's inauguration today as reason for the decline. After all, Janet Yellen (Biden's nominee for Treasury secretary) recently said cryptocurrencies can be used for criminal activities, suggesting the need for regulation. However, the potential for greater scrutiny of crypto under Biden's administration has been a known factor for weeks.
Rather than attribute bitcoin's decline to Biden's inauguration, it seems more likely that bitcoin is simply down today without a good explanation.
Whatever the reason, the price of bitcoin indirectly affects Marathon. The company mines bitcoin -- in layman's terms, Marathon's computers run the bitcoin blockchain network and it's paid in bitcoin tokens. To pay its bills, therefore, it periodically sells tokens for fiat currency. If Marathon needed to liquidate some bitcoin today, it would get 8.5% less than it would have just yesterday. This is a constant reality for any bitcoin mining company.
It should be noted how much trading volume Marathon stock has seen in recent weeks. According to Yahoo Finance, Marathon's average volume over the past 10 days is over 56 million -- in other words, 56 million shares are changing hands every day. For perspective here, consider that Marathon has just over 87 million shares outstanding (this includes recent stock offerings). Not only do more than half of the company's shares trade every day, but this volume also dwarfs that of some megacap companies like Amazon and Microsoft.
This strongly suggests that Marathon stock is trading on extreme hype. Anything that takes the wind out of those sails, therefore, could bring this stock down further. The hype has been fueled by bitcoin's rise thus far. But if bitcoin mania dies down, it's likely Marathon stock will also fall as traders lose interest.