The beginning of December brought a sharp decline in cryptocurrencies. Bitcoin is being pushed below $85,000, losing 7% of its value, while Strategy (MSTR.US) shares are falling more than 8%. The scene was dominated by both broader macroeconomic factors and specific decisions by the largest corporate holder of bitcoin.
Risk-off in the markets
Today’s sell-off in cryptocurrencies is the result of a complex combination of factors. Firstly, investors are experiencing a “risk-off start to December”, uncertainty ahead of the Fed meeting on 9–10 December, signals from the Bank of Japan suggesting a possible rate hike, concerns about stablecoins and forced liquidations in the derivatives market – all of which are hitting risky assets.
MicroStrategy: issuance and fears about BTC sales
The key catalyst for MicroStrategy (Strategy Inc.) shares is the announcement today of a cash reserve of $1.44 billion, financed by a new share issue. The market reacted negatively, even though on paper this security measure appears reasonable.
Problem one: another issue means dilution for shareholders. MicroStrategy financed its aggressive accumulation of Bitcoin through issues – now the spiral may reverse.
Problem two: CEO Phong Le admitted on Friday that the company could sell some of its $56 billion worth of bitcoin if the mNAV ratio fell below 1. MicroStrategy had been building a narrative of continuous accumulation – now that story is being undermined. The mNAV is currently ~1.19, relatively close to the danger threshold.
Interestingly, the correlation between Bitcoin and Strategy shares reached 0.97, which is why the shares behave like a highly leveraged ETF on BTC. When Bitcoin loses 5%, Strategy also loses, but at a higher rate, due to concerns about its business model and potential removal from indices.
Bitcoin and Strategy shares are losing ground at the beginning of the week. The largest cryptocurrency is currently reaching local lows from 21 November. Source: xStation
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