U.S.-based Bitcoin mining firm Marathon Digital Holdings has raised $1 billion through a zero-interest convertible bond issuance, signaling its intent to expand its Bitcoin holdings significantly.
This bold move mirrors the aggressive Bitcoin accumulation strategy of MicroStrategy (MSTR), a company renowned for its commitment to Bitcoin investment.
Zero-Interest Convertible Bond
The $1 billion raised by Marathon (MARA) comes from a zero-interest convertible bond maturing in 2030. Investors can convert these bonds into Marathon shares at a conversion price of $25.92 per share. If Marathon’s stock price significantly exceeds this threshold in the future, bondholders are likely to convert their bonds into shares instead of demanding repayment.
The first $199 million will be allocated to refinancing an existing loan, while the remaining funds will primarily go toward purchasing Bitcoin. As of now, Marathon holds 25,945 Bitcoin, worth approximately $2.5 billion at Bitcoin’s current price of $98,000.
Inspired by MicroStrategy
Marathon’s strategy aligns closely with MicroStrategy’s approach. Over the years, MicroStrategy has repeatedly raised capital through convertible bonds and stock offerings to acquire Bitcoin, achieving remarkable success. Its stock price has skyrocketed, driven by the rising value of its Bitcoin holdings.
This approach hinges on increasing the number of Bitcoin per share, creating a positive feedback loop. As Bitcoin’s price climbs, the value of the company’s stock rises, enabling further capital raises at premium prices. This capital is then used to acquire more Bitcoin, driving the stock price higher in an upward spiral.
Recently, MicroStrategy announced a $4.6 billion Bitcoin purchase comprising 51,780 Bitcoin at an average price of $88,627 each. This acquisition is part of the company’s ambitious 21/21 plan to invest $42 billion in Bitcoin over several years. With a total of 331,200 Bitcoin currently held, MicroStrategy’s Bitcoin holdings are now valued at $32.5 billion.
MicroStrategy also revealed today another $3 billion capital raise via convertible notes, showcasing its commitment to its Bitcoin strategy.
Market Rewards and Strategic Positioning
Following Marathon’s announcement, the market responded favorably, driving up MARA’s stock price. This success could inspire other companies to adopt similar strategies to attract new investors and bolster their stock valuations.
By not only mining Bitcoin but also actively accumulating it, Marathon aims to set itself apart in the highly competitive Bitcoin mining sector. This dual approach positions Marathon to significantly increase its Bitcoin holdings, enhancing its appeal to institutional and retail investors.
Potential Risks
However, this strategy is not without its risks. While it has been lucrative during Bitcoin’s current bull run, history shows that sharp rallies are often followed by steep declines.
A potential “crypto winter” poses a serious challenge. During a prolonged bear market, declining Bitcoin prices could adversely impact Marathon’s stock value. If stock prices fall below the bond conversion threshold, investors may demand repayment in cash rather than shares.
If Marathon or MicroStrategy faces liquidity issues in such scenarios, they may be forced to sell Bitcoin to cover debts, potentially triggering a downward spiral in Bitcoin prices and their stock valuations.
Marathon Digital’s bold $1 billion Bitcoin accumulation strategy underscores its commitment to solidifying its position in the crypto market. By emulating MicroStrategy’s successful playbook, the company hopes to leverage Bitcoin’s potential for growth.
However, while the strategy offers significant upside during a bull market, it carries substantial risks during market downturns. Investors should weigh these risks against the potential rewards as Marathon and similar firms navigate the volatile intersection of traditional finance and cryptocurrency.
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