In principle, the latest development out of the Federal Reserve (Fed) bodes well for cryptocurrency miner Marathon Digital Holdings (NASDAQ:MARA). One of the biggest beneficiaries of the digital asset boom of 2021, MARA stock exceeded $76 at its peak during the new normal, a multiyear high. However, risk-off sentiment clouded the broader capital markets this year, sending Marathon shares into the abyss. And that’s why the Fed’s disclosure was important, though perhaps not in the way the bulls are thinking.
According to the Wall Street Journal, the Fed “approved a rare half-percentage-point interest rate increase and announced plans to shrink its $9 trillion asset portfolio starting next month.” It’s a rather aggressive plan to combat a soaring inflation rate that hit a four-decade high. Of course, raising interest rates doesn’t ordinarily help cryptos, as it increases the value of money on a relative basis, among other factors. But this particular announcement wasn’t unexpected.
No, what shocked some observers on Wall Street was that Fed chair Jerome Powell wasn’t actively considering raising interest rates by 0.75 percentage points at a future meeting. Put another way, the Fed, on some level, is net dovish rather than hawkish. Further, the disclosure implies that the central bank will do what is necessary to prevent a full-blown recession. Great news for MARA stock, right?
On paper, it certainly seems that way. However, the problem is that the Fed doesn’t seem to appreciate the catastrophic damage that the expansion of the money stock has imposed on accelerating prices. These relatively modest rate hikes don’t even begin to address the monetary hole that the economy has dug itself into. So, at some point, then, the serious rate hikes might have to occur.
If the Fed truly gets hawkish, that will presumably put a serious hurting on MARA stock. Therefore, the game plan moving ahead will be to maintain vigilance. While its most recent swing higher is encouraging, investors need to consider the bigger picture.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.