Marathon Digital Holdings (NASDAQ:MARA) stock caught an enormous bid on Monday, with the share price up 19% in afternoon trading. Nonetheless, it’s all fun and games until someone gets hurt, and sensible investors should consider the implications of chasing crypto-fueled rallies.

This definitely isn’t a call to short-sell MARA stock, as that’s just asking for trouble during a time when stretched valuations can carry on stretching. At the identical time, even Bitcoin (BTC-USD) believers can decide to pump the brakes when a cryptocurrency-mining stock embarks on an unprovoked moonshot.

Front-running the earnings event

Make no mistake about it. Bitcoin-mining stocks are volatile assets, and massive price moves are par for the course. It’s common for Marathon Digital stock to rally or retreat 5% or more in a single day.

Unlike the range of spot bitcoin exchange-traded funds (ETFs) which are available today, MARA stock doesn’t move exactly in tandem with the worth moves of bitcoin. On some days, the stock magnifies the cryptocurrency’s rallies and dips, and plenty of risk-tolerant traders are perfectly effective with that.

Nonetheless, Monday’s move was unusual. Bitcoin was actually down barely on the day, hovering at around $63,000. Meanwhile, as I discussed earlier, Marathon Digital stock was up 19% halfway through the trading day.

Granted, since MARA stock is a stock, it may possibly also move on news within the stock market. The main stock-market indexes were up on Monday but not extraordinarily so. In other words, this wasn’t an instance of the stock market’s rising tide lifting Marathon Digital’s boat.

Moreover, I didn’t find any company-specific news catalyst. Marathon Digital’s first-quarter earnings report and conference call aren’t scheduled to occur until May 9. Nonetheless, it seems quite probable that eager short-term stock traders are front-running that upcoming earnings event.

MARA stock isn’t necessarily a meme stock like GameStop (NYSE:GME) stock was in 2021, but it surely does have meme-like qualities because of its volatility and ultra-dedicated following. Interestingly, GameStop stock crashed on Monday, illustrating the purpose that stock dumps often follow stock pumps.

It’s a marathon, not a sprint

Serious investors should all the time be mindful of the difference between trading on news events and investing for the long haul. The recent bitcoin-halving event provides example of this difference.

Nimble traders who bought bitcoin in anticipation of April’s halving event could have netted a fast profit. In contrast, investors who thought the halving would spark an enormous rally were surely disenchanted because the rally ran out of steam soon after the halving event.

In other words, sensible investors shouldn’t base their long-term portfolio strategies on a single event. It’s deep research and big-picture pondering that enable higher returns over time.

Deep research does uncover some positive big-picture catalysts for Marathon Digital. The corporate is a premier bitcoin miner with powerful equipment. Not way back, Marathon Digital increased its hash-rate goal for fiscal yr 2024 from between 35 and 37 exahash per second (EH/s) to a latest goal of fifty EH/s.

That’s an entire lot of hash power, and Marathon Digital is amongst probably the most energetic bitcoin miners around. In April 2024, the corporate produced 850 bitcoin, up 21% yr over yr compared to the 702 bitcoins that Marathon Digital produced in April 2023.

After the halving: Now, what?

At this point, prospective investors might wonder if miners like Marathon Digital can sustain their current business models after the bitcoin-halving event. Indeed, it’s problematic for Marathon Digital that the reward for mining bitcoin has been cut in half.

The answer is twofold. The corporate needs to seek out ways to mine more bitcoin — and to do it more efficiently. Furthermore, the bitcoin price must rise, and Marathon Digital has no control over that.

Meanwhile, there’s the upcoming earnings event to contemplate. Again, short-term traders might give you the option to flip MARA stock for quick profits. Alternatively, long-term investors might easily get burned in the event that they chase the pre-earnings rally.

A prudent approach can be to attend until Marathon Digital’s earnings event has come and gone. No less than you then’ll have more data to work with, and if the outcomes are positive, you may spend money on the corporate with justification as an alternative of just hope.