On July 22, Fidelity Investments Inc. purchased an approximately $ 20 million 7.4% stake in Marathon Digital Holdings, one of the largest bitcoin mining operations in North America, through four major index 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). Together they have a market cap of $ 170 billion. While the percentage of everyone dedicated to Marathon is tiny, many of these index funds are popular in retirement accounts.
The recent purchase illustrates a growing trend among institutions and individual investors to gain exposure to the crypto industry through traditional stocks or debt securities. Marathon shares trade the same way as the price of bitcoin (see chart below), only its returns have been magnified. So while bitcoin has risen 240% in the last year or so, Marathon shares have risen 660%. Thus, these Fidelity index funds can effectively access volatile cryptocurrency without directly owning the digital asset. It can also mean that many investors in the United States and abroad are unwittingly exposed to bitcoin and other digital assets in their retirement accounts or investment portfolios.
With this purchase, Fidelity joins other institutional giants such as Vanguard Group (7.58%), Susquehanna (2.7%) and Blackrock (1.59%) who also own shares in the company.
It makes sense that Fidelity is moving in this direction, as it was one of the first financial institutions to start embracing cryptocurrencies and digital assets. In fact, years ago, company executives were mining bitcoin in their offices to experiment with the technology.
Then, in 2018, she launched Fidelity Digital Assets as a stand-alone business to provide sophisticated institutional investors such as hedge funds, market intermediaries and family offices with enterprise-grade custody and trade execution. digital and crypto assets like bitcoin. The entity currently serves over 100 clients.
“We are very excited about institutional ownership,” said Fred Thiel, CEO of Marathon, in an interview following Fidelity’s disclosure. “If you look at the change from last year to this year and even the last two quarters have been amazing [in] how much institutional ownership has increased in our inventory, ”adds Thiel.
Marathon differentiates itself from other US-based bitcoin mining companies, such as Riot and Core Scientific, in that they do not have hosting facilities or electrical facilities and instead work with third parties to host and exploit only minors. The reason is that they are focused on investing more money in the deployment of mining equipment and miners and believe that owning a hosting facility would not generate the same level of return.
“I think as an investor looking at mining stocks, you want to look at the growth rate, you want to look at the return on assets, you know it’s a very CapEx intensive business,” Thiel adds.
The miner currently has around 19,000 miners deployed across the United States, but has purchased 100,000 more units to be installed over the next 12 months.
Additionally, in figures released yesterday, the miner produced 442.2 new bitcoins minted in July 2021, bringing total bitcoin holdings to around 6,225.6 with a fair market value of around $ 260.7 million. . This number represents a 66% month-over-month gain, which was surely aided by the crackdown on mining facilities in China, which has led all other miners to see their prorated share of Bitcoin’s hashrate temporarily increase. . As these minors come back online, this temporary benefit may wear off over the next few months.
With more traditional financial institutions flocking to digital assets and crypto, Thiel remains optimistic about the role of bitcoin going forward. “We are excited to see all the applications that are going to be deployed on bitcoin and the expansion of bitcoin as it permeates the type of traditional financial markets.”
When asked to comment on the stock purchase, a Fidelity spokesperson replied, “In practice, we don’t comment on individual stocks. To protect our shareholders, we do not disclose investment intentions.