Key Insights:
- Grayscale’s Zach Pandl outlines how MicroStrategy has been influencing Bitcoin volatility.
- Strategy’s unrealized losses have reached the highest levels in history, over $10 billion.
- Bitcoin and Strategy stock underperform compared to the magnificent 7.
The crypto spotlight has been on MicroStrategy, especially after the bloodbath that unfolded this week. The stock has been the subject of conversation because of its heavy exposure to Bitcoin.
Just as expected, MicroStrategy was not spared by the recent volatile market conditions. Even more interesting was that analysts have attributed some of the Bitcoin volatility to Strategy.
Zach Pandl, the head of research at Grayscale, recently stated that Strategy may have played a heavy hand in the sell pressure. This was courtesy of its announcement earlier this month that it sold 32 BTC.
Pandl believes that the sale had ripple effects on market sentiment. He also added that the company’s highly leveraged business model is under more pressure now that the markets have been crashing.
The Grayscale analyst also noted that MicroStrategy now has a limited ability to accumulate more BTC at the current MSTR stock prices.
MicroStrategy Now Sits on Roughly $10 billion in Unrealized Losses
This week’s sell pressure has not only caused a dent in terms of sentiment but also put MicroStrategy firmly into loss territory. The latest data revealed that the company had unrealized losses worth over $10 billion.
This loss is based on its BTC holdings and borrowed funds. The concern here is that deeper losses could affect the company’s ability to honor its debt obligations.
However, its chairman, Michael Saylor, previously noted that MicroStrategy still had some runway for debt and dividend repayment. This assurance boosted investor confidence last time and paved the way for recovery.
This time, the concern is that the company joined the sellers. However, the amount of BTC sold barely made a dent in MicroStrategy’s Bitcoin holdings.
Despite that, the market remains concerned about the potential impact on Strategy and its business model if prices continue to fall. The fact that it was already deep in loss territory has already flashed red flags among holders, risking another FUD-induced cascade.
MSTR Stock Underperformance Disappoints Investors
MSTR stock sat at a critical support zone at the time of writing. It exchanged hands at $120 at press time, after a slight recovery from its weekly low of $114.
The MSTR stock price was on the cusp of falling into oversold territory. The last time it did so was in February, when it risked dropping into double-digit territory.
This time, the risk is also real, especially if the market extends its bearish assault into the coming week. Interestingly, Bitcoin price crash and MSTR bearish activity have disappointed investors.
MicroStrategy stock was down 67% over the last 12 months and 14% over the last 3 months, as of its latest price. Meanwhile, Bitcoin was down 41% over the last 12 months and 15% over the last 3 months.
Both MSTR and BTC have underperformed compared to all the Magnificent 7 stocks. In fact, the market recently saw a heavy institutional liquidity exodus, signaling investor panic.
The liquidity outflows underscored capitulation, indicating that investors were withdrawing funds and channeling them into investments with higher returns. This puts Bitcoin and MSTR stock in a precarious position.
Will the market bounce back sharply, or will prices continue to fall? The discounted prices could pave the way for some re-accumulation, but that remains to be seen.
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