What happened
Shares of bitcoin-mining company Marathon Patent Group (MARA +8.33%) tumbled on Thursday, as the price of bitcoin continued falling. As of 1:15 p.m. EST, the stock was down 10%.
So what
In recent days there has been some news regarding Marathon's management, though it's not likely contributing to the stock's decline. Kevin A. DeNuccio was recently added to the board of directors. DeNuccio has twice been a chief executive officer of a public company, once with Redback Networks and then with Violin Memory. Both of those experiences ended with a sale of the company, but DeNuccio didn't hint that will be the plan with Marathon. In the press release he expressed excitement to be joining "at this pivotal time in Marathon's growth phase."
Image source: Getty Images.
Yesterday, DeNuccio was listed as a beneficial owner of Marathon stock with 5,000 shares, according to a filing with the Securities and Exchange Commission.
Gaining an experienced executive like DeNuccio is a good thing for Marathon. Furthermore, now his interests are more aligned with common shareholders, which is also a positive. None of this explains why Marathon stock has been down the last several days, even though these events correspond with the stock going down.
Even having pulled back, Marathon stock and bitcoin have still outperformed the stock market over the past year. MARA data by YCharts
Now what
There's a two-fold reason Marathon stock today is really down today, and it will have a big influence over whether this stock is up or down tomorrow too. First, as already mentioned, the price of bitcoin is down today. Bitcoin is down 8.5% over the past 24 hours, according to CoinDesk. And it's down roughly 25% from all-time highs set earlier this month. Since Marathon mines bitcoin, it's logical for the stock to be affected.
More importantly, Marathon is extremely overbought in my opinion. Even with the pullback, the stock trades at hundreds of times trailing sales. This extreme valuation is due to hype -- consider that this was a penny stock that's been pumped. It worked out well for shareholders in 2020. But when bitcoin pulls back, it dampens enthusiasm for investments like this and the valuation takes a hit. And Marathon could have much further to fall if traders dump this and move on to the next big thing.
