Marathon Digital Holdings' (MARA 5.63%) stock plunged 27% on Nov. 15 after the Bitcoin (BTC -1.08%) mining company made two surprising announcements. First, it announced an upsized $650 million convertible senior notes offering to fund its purchases of additional Bitcoin miners. Second, it disclosed a Securities and Exchange Commission (SEC) subpoena that requested documents related to its data center contracts in Hardin, Montana.

Those two revelations dampened the market's enthusiasm for Marathon's stock, which had risen more than 3,000% over the past 12 months as it purchased and mined more Bitcoins. But could this pullback represent a rare buying opportunity for investors who can stomach the near-term volatility?

An all-in bet on Bitcoin

Marathon was once a patent holding company that bought patents, sat on them, and generated revenue through licensing deals and litigation. But last year it rebranded itself as a Bitcoin mining company and placed a long-term order for more than 100,000 high-end ASIC miners from Bitmain.

Bitcoin tokens on top of a phone.

Image source: Getty Images.

At the end of 2020, Marathon only held 126 Bitcoins. But in March it purchased an additional 4,813 Bitcoins for $150 million at an average price of $31,168 -- which is well below its current market value of nearly $61,000.

Marathon operated 27,280 miners at the end of October, and it expects to expand its fleet to 133,000 miners by mid-2022. But those miners cost more than $10,000 each, and Marathon expects to remain unprofitable as it takes on more debt to fund those purchases.

Last year, Marathon only generated $4.4 million in revenue and posted a net loss of $10.4 million. But in the first nine months of 2021, its revenue skyrocketed to $90.2 million as its expanding fleet of miners produced more Bitcoins. By the end of October, it held 7,453 Bitcoins -- which have a current market value of approximately $454 million -- and $20.9 million in cash.

However, Marathon also posted a net loss of $47.7 million during the first nine months of 2021, even after booking a $58.8 million gain from its investment in Stone Ridge's Bitcoin-oriented NYDIG fund. Excluding that gain, its operating loss of $106.7 million indicates the company is still spending more than two dollars for every dollar of Bitcoin revenue it generates.

The bulls believe Marathon's losses will narrow as its scale improves and Bitcoin's price continues to rise. Meanwhile, the bears believe Marathon's losses could easily overwhelm its liquidity, its returns are wildly unpredictable, and that its stock is too richly valued at more than 30 times this year's sales.

What about its convertible debt offering and SEC subpoena?

Marathon's $650 million senior convertible debt offering (which was increased from $500 million) isn't surprising, since it's burning a lot of cash to expand its mining fleet. These new notes will mature on Dec. 1, 2026, bear an annual interest rate of 1%, and have an initial conversion rate of $76.17 per share -- which is nearly 40% above its current market price.

Investors generally dislike convertible debt offerings because they increase a company's leverage while potentially diluting its equity. However, Marathon's debt-to-equity ratio hovered near zero at the end of the third quarter, and that ratio will likely remain just below 1.0 after it closes the offering. Therefore, investors who believe in Marathon's long-term expansion plans shouldn't worry too much about its convertible debt offering.

As for the SEC subpoena, it's related to Marathon's deals with Beowulf Energy and other parties to build a data center in Hardin last October. In particular, the agency is investigating Marathon's issuance of six million shares of restricted common stock to fund those deals -- which notably granted it favorable energy rates through a joint venture with Beowulf -- and if they violated any security laws. This investigation could cause problems for Marathon, since it relies on Beowulf's lower energy prices to mine Bitcoin at cost-efficient rates.

Is Marathon Digital's stock worth buying?

If you're a big believer in Bitcoin, Marathon Digital's stock might still be a great investment in the cryptocurrency's future. The convertible debt offering supports its long-term expansion plans, and it could become one of the world's largest pure-play Bitcoin miners if it achieves its expansion targets next year.

Marathon's stock isn't cheap, and the SEC subpoena could certainly generate unpredictable headwinds. But over the long term, I think Marathon will continue to grow like a weed if Bitcoin's price continues to rise.

Therefore, I believe Marathon could be worth buying as the debt offering and SEC subpoena weigh down its stock. However, investors should fully understand the risks before buying this "all in" play on the Bitcoin market.