Day: August 12, 2024

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Financial services industry consultant John Reed Stark has raised concerns about Morgan Stanley’s recent move to permit its wealth advisors to recommend spot Bitcoin ETFs to clients. Stark, president of a consulting firm based in Bethesda, Md., warned that this decision could invite substantial regulatory scrutiny. In a post on X, Stark suggested that Morgan Stanley’s action might trigger what could be “the largest SEC and FINRA examination sweep in history,” given that the firm’s 15,000 advisors will now be able to solicit clients for select spot Bitcoin ETFs.

Diverse Opinions on Bitcoin ETFs

Morgan Stanley’s decision to allow advisors to offer two of the nine existing spot Bitcoin ETFs—the $9.7 billion Fidelity Wise Origin Bitcoin Fund (FBTC) and the $19 billion iShares Bitcoin Trust (IBIT)—has sparked debate. Advisors will only offer these ETFs to clients with at least $1.5 million in investable assets. Critics like Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, question Stark’s position, noting that Stark has been consistently skeptical of cryptocurrencies. Balchunas argues that Stark’s concerns lack specifics on how advisors might face trouble.

On the other hand, some experts, such as Svetlin Krastev, founder of Black Sea Gold Advisors, believe that since spot Bitcoin ETFs have already undergone extensive regulatory scrutiny, further unique oversight is unlikely. Krastev contends that offering an SEC-approved product should not invite additional regulatory challenges.

Potential for Increased Regulatory Oversight

Noah Damsky, principal at Marina Wealth Advisors, expresses concerns that market volatility could prompt regulators to target Bitcoin ETFs as “low-hanging fruit.” Damsky points out the significant price swings in Bitcoin, noting that last week, Bitcoin fell 6% while the Nasdaq dropped 3%. This volatility raises concerns about the suitability of such investments for the average investor.

Adam Gana, a New York-based securities lawyer with Gana Weinstein, also foresees potential issues. Gana predicts increased arbitration cases as Bitcoin becomes more accessible to Main Street investors and cautions that the industry might look back critically at this move in the future.

Ric Edelman, founder of the Digital Assets Council of Financial Professionals, countered Stark’s claims, emphasizing that financial advisors should not be deterred by Stark’s criticisms. Edelman asserts that Stark’s views are biased and advises advisors to focus on serving their clients’ best interests, despite Stark’s warnings.

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The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against cryptocurrency company NovaTech and its co-founders, Cynthia and Eddy Petion, alleging that they orchestrated a fraudulent scheme that amassed over $650 million from more than 200,000 investors globally, including a significant number of Haitian-Americans. The SEC alleges that NovaTech and the Petions falsely assured investors of the safety of their funds, with Cynthia Petion promising profits “from day one.”

Details of the Alleged Scheme

According to the SEC, the Petions used new investor funds primarily to repay earlier investors and pay commissions to promoters, while diverting millions of dollars for their benefit. The fraudulent scheme reportedly lasted four years, ending with NovaTech’s collapse in May 2023. The lawsuit, filed in Miami federal court, follows a similar lawsuit from New York Attorney General Letitia James, who had previously estimated the fraud at over $1 billion.

The regulators accuse NovaTech of exploiting victims’ religious beliefs through social media, Telegram, WhatsApp, and even in Haitian Creole, with Cynthia Petion portraying herself as “Reverend CEO” and claiming NovaTech was “God’s vision.” Both the SEC and state regulators have labeled the scheme as a pyramid scheme, where new investments are used to pay returns to earlier investors and recruit more participants.

The SEC has also charged six NovaTech promoters with fraud, accusing them of continuing to recruit investors despite obvious warning signs, such as delayed withdrawals and regulatory scrutiny in the U.S. and Canada. One promoter, Martin Zizi, has agreed to a $100,000 civil fine.

Both the SEC and state lawsuits seek restitution for victims and civil penalties. The case is filed as SEC v. Nova Tech Ltd., U.S. District Court, Southern District of Florida, No. 24-23058.

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Marathon Digital Holdings Inc. (NASDAQ:MARA)

Marathon Digital Holdings Inc. has announced plans to sell $250 million in convertible senior notes, with the proceeds earmarked for acquiring additional Bitcoin. This move aligns with a strategy similar to that of MicroStrategy Inc., which has been increasing its Bitcoin holdings over the years in anticipation of a rise in cryptocurrency prices.

Strategic Moves and Market Impact

Marathon Digita, the largest Bitcoin miner in the U.S., is among several public mining companies that have resumed accumulating Bitcoin following the April ‘halving’ event, which reduced mining revenue. In 2022, many miners had been liquidating their Bitcoin reserves to manage high energy costs and industry challenges. The ‘holding’ strategy, as it’s known in the crypto world, could enhance the market presence of public mining companies as leveraged proxies for Bitcoin prices and potentially boost their stock prices, according to Ethan Vera, Chief Operating Officer at Luxor Technology.

The issuance of convertible notes also introduces the risk of dilution for existing shareholders. On Monday, Marathon’s shares fell by up to 12% to $15, reflecting a 34% drop in stock value for the year, despite Bitcoin’s 40% gain over the same period. As of July 31, Marathon held 20,818 Bitcoin and had a total of $1.6 billion in cash and digital assets. The company reported a nearly $200 million net loss for the second quarter, primarily due to a writedown on its digital asset holdings.

The convertible notes, set to mature in 2031, will be offered in a private placement to institutional investors.

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Top NFT Collections Drive Significant Sales

On August 11, DMarket dominated the non-fungible tokens (NFTs) market with an outstanding sales figure of $733,528, according to CryptoSlam data. DMarket, an NFT collection featuring in-game items from popular games such as Counter-Strike and Dota 2, outperformed other collections that day. The Mythos-based collection has achieved an all-time sales volume of $485.22 million, ranking it as the 14th largest collection in the NFT industry.

Other Leading NFT Collections and Blockchain Performance

The second-highest NFT collection for the day was Guild of Guardians Heroes on the Immutable blockchain, with a daily sales volume of $531,721, down slightly from the previous day’s $591,119. The Polygon-based Kgirl collection secured the third position with daily sales of $475,659. Solana NFTs filled the fourth and fifth spots, with DeGods achieving $332,921 and the DogeZuki Collection securing $311,838 in sales.

Despite DMarket’s leading position in sales, the Mythos blockchain did not top blockchain sales rankings. On Sunday, Ethereum emerged as the leading blockchain with $2.7 million in sales, while Solana followed with $1.94 million. Notably, last Thursday, Mythos led all blockchains in sales, with DMarket topping the Ethereum network.

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The volatility in the cryptocurrency market continues to impact Bitcoin mining stocks like Marathon Digital (NASDAQ:MARA). Despite the recent recovery in Bitcoin (BTCUSD) prices, Marathon Digital stock has faced significant challenges in 2024, leaving investors questioning whether it is a worthwhile investment after the recent crypto correction.

Marathon Digital’s Performance Amid Crypto Volatility

Marathon Digital is one of the largest Bitcoin mining companies globally, with a market capitalization of $4.8 billion. However, the company’s stock has been on a downward trajectory, tumbling nearly 80% since its peak during the crypto bull market of late 2021. In 2024 alone, Marathon Digital stock has declined by 32.7%, including an 8% drop following the announcement of a convertible note offering intended to raise funds for Bitcoin purchases and other corporate purposes.

This decline comes despite a favorable environment for Bitcoin prices, which typically supports the valuation of mining companies like Marathon Digital. The sharp correction in Marathon Digital stock highlights the complexities of the crypto market and the specific challenges facing the company.

How Did Marathon Digital Perform in Q2 2024?

In the second quarter of 2024, Marathon Digital reported a 78% year-over-year increase in sales, reaching $145.1 million, up from $81.8 million in the same period last year. This growth was primarily driven by a $78.6 million increase in the average price of Bitcoin mined. However, this gain was partially offset by a $23.9 million decrease in Bitcoin production, largely due to the Bitcoin halving event in April 2024, which cut mining rewards in half.

During Q2, Marathon Digital produced an average of 22.9 BTC per day, down from 32.2 BTC per day in the previous year. The company’s total Bitcoin production for the quarter was 868 BTC less than in the same period last year, reflecting the impact of the halving event and an increased global hash rate. Additionally, Marathon sold 51% of the BTC it produced during the quarter to cover operating costs, a move that underscores the financial pressures the company is facing.

Marathon Digital’s net loss widened significantly in Q2, reaching $199.7 million, or $0.72 per share, compared to a net loss of $9 million, or $0.07 per share, in the same quarter last year. This increase in losses was partly due to unfavorable fair value adjustments of digital assets, which negatively impacted the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization). Marathon’s EBITDA loss in Q2 stood at $85.1 million, compared to an EBITDA gain of $35.8 million in the previous year.

Operational Improvements and Future Prospects

Despite the financial setbacks, Marathon Digital has focused on improving its operational efficiency. In June 2024, the company doubled its average operational hash rate year-over-year to 26.3 exahashes per second. Furthermore, Marathon’s proprietary mining pool captured 158 blocks in July, representing a 10% increase year-over-year. However, the company’s total Bitcoin production fell by 40% to 590 BTC during the same month, although transaction fees contributed to 7% of the total revenue.

Marathon Digital is also investing in technology advancements, including immersion cooling and robust hardware infrastructure, to optimize its mining operations. The company aims to end 2025 with a significant increase in its hash rate, targeting 50 exahashes per second.

In addition to its domestic operations, Marathon is expanding internationally. The company recently launched a 2-megawatt pilot project in Finland, aiming to provide energy with recycled heat to 11,000 residents. This initiative highlights Marathon’s commitment to integrating digital asset computing with sustainable energy solutions, potentially reducing carbon emissions and operational costs.

Analyst Recommendations and Price Target

Analyst sentiment on Marathon Digital stock is mixed. Out of nine analysts covering the stock, three rate it as a “strong buy,” five recommend “hold,” and one suggests a “strong sell,” resulting in a “moderate buy” consensus. The average target price for Marathon Digital stock is $20.91, indicating a potential upside of over 34.3% from its current levels.

Conclusion: Is Marathon Digital Stock a Buy?

Marathon Digital stock presents a complex investment case. While the company has shown resilience in growing its operational capabilities, the broader challenges in the cryptocurrency market and its financial performance raise concerns. Investors considering Marathon Digital stock should weigh the potential upside against the risks associated with the volatile nature of the crypto industry and the company’s ongoing financial challenges. For those with a long-term perspective and tolerance for risk, Marathon Digital might offer a buying opportunity, particularly if Bitcoin prices continue to rise. However, caution is advised given the uncertainties that lie ahead.

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