What happened

Shares of cryptocurrency miner Marathon Digital Holdings (MARA -1.80%) had sunk more than 20% by late afternoon on Monday, erasing nearly all the gains it had seen since the beginning of the month in one fell swoop.

Since Marathon is predominantly a Bitcoin (BTC -4.03%) miner, this rising cryptocurrency price environment has been bullish for the stock. Investors tend to view cryptocurrency miners as leveraged ways to play momentum in digital token prices. Similar to precious metals miners, cryptocurrency mining companies offer investors leverage to underlying commodity prices in a way that can amplify returns.

But today's price action appears to have little to do with where cryptocurrency prices are. Rather, investors appear to be factoring in a large capital raise that the company announced today.

So what

How large is large? Well, Marathon's unsecured senior convertible debt offering could bring in as much as $575 million, if fully subscribed. That's a very decent chunk of change for a company with a market capitalization that is now below $6 billion.

Investors clearly appear to be taking issue with this offering. Some of this sentiment could certainly be attributed to its size. Such a big convertible debt offering potentially alters the capital structure of the company permanently.

But the fact that this was done via convertible debt rather than a share offering appears to have some investors worried. Those with convertible notes will be paid regardless of what the share price does. Thus, the lack of full participation from large investors in what many view as a stock with tremendous upside potential has some smaller retail investors worried.

Now what

Marathon is a cryptocurrency miner that many expected would need to raise capital at some point. Compared to its peers, Marathon has been viewed as relatively undercapitalized. The company holds a tremendous amount of Bitcoin on its books, but has been reluctant to sell it to fund growth.

The company intends to use the funds from its convertible debt offering to purchase additional Bitcoin miners and Bitcoin itself. Accordingly, there could be some hesitation among investors looking at Marathon as a company levering up to buy Bitcoin, particularly near all-time highs.

Right now, it's starting to look ugly for Marathon's stock price. Indeed, this will be a stock to watch this week and in the weeks to come.