Shares of MARA Holdings (MARA -11.62%) are falling on Wednesday, down 13.8% as of 2:58 p.m. ET. The drop comes as the S&P 500 and Nasdaq Composite gained 0.7% and 0.5%, respectively.
The Bitcoin mining company's stock is falling today after the company announced a private offering of $850 million, sparking fears of dilution.
MARA's financial move
The company announced it intends to initiate a $850 million private offering with convertible notes due in 2032. Initial purchasers may be granted an option to acquire an extra $150 million in notes. These are unsecured senior obligations and won't be subject to regular interest.
The funds will be primarily used to acquire Bitcoin, fund operations, as well as fund capped call transactions, a financial maneuver that will help curb stock dilution. However, some dilution can still occur, and investors were clearly worried today that it would, leading to the sell-off.
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MARA is highly dependent on Bitcoin
MARA's profitability is extremely sensitive to the price of Bitcoin. It's also highly dependent on energy costs. These are both major concerns for investors. To the latter point, I think energy costs are going to be a major concern in the years to come. Energy demands from the artificial intelligence (AI) industry are enormous, growing, and will keep energy prices elevated, impacting MARA's costs to mine Bitcoin.
And although there are theoretical advantages to investing in a miner's stock over directly purchasing Bitcoin itself, I think we've seen that there is much more downside in practice. I would avoid the stock.
