On July 22, Fidelity Investments Inc. acquired a 7.4% stake worth about $20 million in Marathon Digital Holdings, one of the largest bitcoin mining operations in North America, through four broad 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 capitalization of $170 billion. Although the percentage in each dedicated to Marathon is miniscule, many of these index funds are popular in retirement accounts.
The recent purchase exemplifies a growing trend among institutions and individual investors to gain exposure to the cryptocurrency sector through traditional equity or debt securities. Marathon’s shares are trading similarly to the price of bitcoin (see chart below), only its returns have been amplified. So while bitcoin has risen 240% in the last year or so, Marathon shares have risen 660%. So these Fidelity index funds can actually access the volatile cryptocurrency without directly owning the digital asset. It may also mean that many investors in the U.S. and abroad have unconscious exposure to bitcoin and other digital assets in their retirement accounts or investment portfolios.
With this purchase, Fidelity joins other institutional giants like Vanguard Group (7.58%), Susquehanna (2.7%) and Blackrock (1.59%) who also have shares in the company.
It makes sense for Fidelity to move in this direction, given that it was one of the first financial institutions to begin embracing cryptocurrencies and digital assets. In fact, years ago the company’s executives mined bitcoin in their offices to experiment with the technology.
Then in 2018, it launched Fidelity Digital Assets as an independent business to offer sophisticated institutional investors such as hedge funds, market intermediaries and family offices enterprise-quality custody and trade execution of digital and crypto assets like bitcoin. The entity currently serves more than 100 clients.
We’re super excited about institutional ownership,” says Marathon CEO Fred Thiel in an interview after Fidelity’s disclosure. “If you look at the change from last year to this year and even the last two quarters have been just amazing [in] how much institutional ownership has grown in our stock,” Thiel adds.
Marathon differs 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 to host and manage miners exclusively. The reason is that they focus on putting more money into implementing 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,” adds Thiel
The miner currently has about 19,000 miners deployed in the United States, but has procured another 100,000 units to be installed over the next 12 months.
Also, in figures released yesterday, the miner produced 442.2 new bitcoins minted during the month of July 2021, increasing total bitcoin holdings to about 6,225.6 with a fair market value of about $260.7 million. This number is a 66% gain month over month, which was definitely helped by the crackdown on mining facilities in China, which led to all other miners seeing their pro-rata share of bitcoin hashrate increase temporarily. As these miners come back online, this temporary advantage could dissipate in the coming months.
With more and more traditional financial institutions flocking to digital assets and cryptocurrencies, Thiel remains optimistic about bitcoin’s role in the future.
We’re excited to see all the applications that are going to be launched on bitcoin and the expansion of bitcoin as it permeates into the kind of traditional financial markets.
Alla richiesta di un commento sull’acquisto di azioni, un portavoce di Fidelity ha risposto:
Come prassi, non commentiamo i singoli titoli. Come protezione per i nostri azionisti, non riveliamo le intenzioni di investimento