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In this March 28, 2019, photo people are reflected in a window as they walk by a Fidelity … [+]
On July 22, Fidelity Investments Inc. purchased a 7.4% stake worth approximately $20 million in Marathon Digital Holdings, one of the largest bitcoin mining operations in North America, across four broad index-based funds, Fidelity Extended Market Index Fund (FSMAX), Fidelity Nasdaq Composite Index Fund (FNCFX), Fidelity Total Market Index Fund (FSKAX) and Fidelity Series Total Market Index Fund (FCFMX). Combined they have a market capitalization of $170 billion. Though the percentage in each devoted to Marathon is tiny, many of these index funds are popular in retirement accounts.
The recent purchase exemplifies a growing trend among institutions and individual investors of gaining exposure to the crypto industry through traditional equity or debt securities. Marathon’s stock trades similarly to the price of bitcoin (see chart below), only its returns have been amplified. So while bitcoin is up 240% in the last year or so, Marathon shares have climbed 660%. So these Fidelity index funds can effectively gain access to the volatile cryptocurrency without actually owning the digital asset directly. It may also mean that many investors in the U.S. and abroad have unwitting exposure to bitcoin and other digital assets in their retirement accounts or investment portfolios.
Price comparison of Bitcoin and Marathon Digital Holdings from January ’21 through June’21
With this purchase, Fidelity joins other institutional giants such as the Vanguard Group (7.58%), Susquehanna (2.7%), and Blackrock (1.59%) that also have shares in the company.
Breakdown purchases of shares.
It makes sense for Fidelity to move in this direction, as it was one of the first financial institutions to begin embracing cryptocurrencies and digital assets. In fact, years ago executives in the firm used to mine bitcoin in their offices to experiment with the technology.
Then in 2018 it launched Fidelity Digital Assets as a stand alone business to offer sophisticated institutional investors such as hedge funds, market intermediaries and family offices an enterprise-quality custody and trade execution of digital assets and crypto such as bitcoin. The entity currently serves 100+ clients.
“We’re super excited about the institutional ownership,” says Marathon CEO Fred Thiel in an interview following the Fidelity disclosure. “If you look at the change from last year to this year and even the last two quarters have just been amazing [in] how much institutional ownership has grown in our stock,” adds Thiel.
Marathon differentiates itself from other U.S.-based bitcoin mining companies such as Riot and Core Scientific in that they do not own hosting facilities or power facilities and instead work with third parties for hosting and solely operate the miners. The reason being that they focus on putting more money into deploying mining equipment and miners and believe that owning a hosting facility would not generate the same level of returns.
“I think as an investor looking at mining stocks, you want to look at growth rate, you want to look at return on assets, you know it is a very CapEx intensive business” adds Thiel.
The miner currently has approximately 19,000 miners deployed across the U.S., but has procured another 100,000 units to be installed over the next 12 months.
Marathon’s projected miner deployment over next year
Additionally, in figures disclosed yesterday the miner produced 442.2 new minted bitcoins during July 2021, increasing total bitcoin holdings to approximately 6,225.6 with a fair market value of approximately $260.7 million. This number is a 66% gain month-over-month, which was surely aided by the crackdown of mining facilities in China, which led to all other miners seeing their pro-rata share of bitcoin’s hashrate increase temporarily. As these miners come back online, this temporary advantage could dissipate over the next several months.
With more and more traditional financial institutions flocking towards digital assets and crypto, Thiel remains optimistic regarding bitcoin’s role in the future. “We are excited to see all the applications that are going to be rolled out on bitcoin and the expansion of bitcoin as it permeates itself into the kind of mainstream financial markets”.
When asked for comment on the share purchase a Fidelity spokesperson responded, “As a practice, we do not comment on individual securities. As a protection for our shareholders, we do not reveal investment intentions.”
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