Sophia’s Thoughts on MicroStrategy’s Bitcoin Spree
MicroStrategy has become one of the largest Bitcoin whales in the market. What does this mean for Bitcoin and crypto going forward?
These are Sophia's Thoughts:
MicroStrategy has accumulated a large amount of Bitcoin and become the fifth largest Bitcoin whale.
Its corporate strategy consists of holding on to Bitcoin unless there are liquidity needs. In the past, MicroStrategy has only sold some of its Bitcoin for tax benefits.
While generally a concentrated market is not great for investors, the MicroStrategy situation can deliver support for Bitcoin.
It can provide additional buying pressures and boost the price ahead of a looming spot Bitcoin ETF approval and the Bitcoin halving next year.
Our AI + Your Sentiment = Exceptional Crypto Performance. Join Indicia Labs now to follow Pallas and start performing like a crypto hedge fund. Try us out for free for three months using the offer code SophiasThoughts.
🚀 Last week’s market performance
The crypto market and Bitcoin (BTC) lost 1.8% last week. The best performing coin of the week was Curve DAO Token (CRV). It posted a return of 22.6% when whales bought at a low point. The worst performing coin was DeFiChain (DFI) with a loss of 15.6%. The losses came when investors became aware of troubles at Bake, the establishment behind DeFiChain.
🧐 What is your crypto mood today?
In each Sophia's Thoughts newsletter, we ask about your crypto mood. Your response to this question helps Sophia get a better sense of the pulse of crypto markets. And this ultimately translates into better insights for you when combined with Sophia's AI models. Your data empowers Sophia to provide you with even better intelligence going forward!
🐳 MicroStrategy: a BTC whale
MicroStrategy, the renowned business intelligence firm led by Michael Saylor, has continued its impressive accumulation of Bitcoin over the last 12 months. Recent reports indicate that the company purchased USD 150 million Bitcoin in August and September 2023. MicroStrategy now boasts a portfolio of more than 150,000 Bitcoin. These Bitcoins are worth over USD 4 billion currently in the market. With a market capitalization of USD 4.62 billion, MicroStrategy’s BTC assets represent 90% of its market value.
This staggering figure solidifies the company’s position as one of the world’s largest corporate Bitcoin holders. MicroStrategy now holds close to 1% of all of the Bitcoin in public supply. It constitutes the largest Bitcoin holding of any public company. And it puts MicroStrategy among the top 5 largest whales in the Bitcoin market.
🤨 Why so much Bitcoin?
MicroStrategy’s persistent and sizable investment in Bitcoin reflects its confidence in the long-term viability of cryptocurrencies. Michael Saylor has been a strong advocate for Bitcoin. In MicroStrategy’s Q2 2022 earnings call, Saylor said:
“The current wave of crypto rationalization, regulation and innovation is healthy for this industry over the mid and the long time frame. And we expect Bitcoin will be the prime beneficiary of all these trends.”
MicroStrategy has financed its Bitcoin purchases through a combination of debt and equity. Its strategy appears to be to accumulate Bitcoin for long-term value. And it appears that the company will only sell Bitcoin for liquidity purposes when needed. That means: Buy low, sell high whenever possible.
The average price that MicroStrategy paid is USD 29,582 per Bitcoin. With BTC currently trading close to USD 26,000, the company is currently carrying a loss in its Bitcoin portfolio. Last year, MicroStrategy used the loss in its Bitcoin portfolio to its advantage. It sold Bitcoin for the first time in December 2022 to write off some of the losses and compensate for previous capital gains. But this strategy critically relies on Bitcoin being treated as a commodity for tax purposes.
MicroStrategy Sells Off Bitcoin for First Time — Then Buys Even More (Decrypt)
Here’s Why MicroStrategy Sold 704 Bitcoins on December 22 (CryptoPotato)
In the meantime, MicroStrategy’s stock has become highly correlated with the Bitcoin price. In the last two years, the correlation has been as high as 90%. Many investors view the MicroStrategy stock now as a proxy for Bitcoin. It offers traditional investors a way to gain exposure to Bitcoin without having to actually own Bitcoin. This has led to some increased institutional interest in MicroStrategy. Which, ultimately, benefits the company through ease of financing options.
But easier access to Bitcoin has also been the main argument used to promote spot Bitcoin ETFs by the likes of Greyscale, Fidelity, and others. MicroStrategy is indirectly competing with these asset management giants. If the SEC does end up approving a spot Bitcoin ETF, this could possibly spell trouble for MicroStrategy.
👍 How this may impact crypto
Large whale holdings are never a good thing for cryptos. Whales can impact the available liquidity in the market and drive large price swings. But, in this particular situation, the MicroStrategy situation can have a positive effect on Bitcoin.
First, MicroStrategy acts as a proxy for Bitcoin ahead of a looming spot Bitcoin ETF approval. If a spot Bitcoin ETF does get approved by the SEC in the near future, the operator of the ETF will need to purchase large amounts of Bitcoin. It is natural to expect the Bitcoin price to jump up if a spot Bitcoin ETF does get approved. And, because MicroStrategy controls a large amount of the Bitcoin in circulation, we expect the impact to be much stronger if MicroStrategy holds on to its Bitcoin.
Why the Grayscale Win Is Better for Bitcoin and MicroStrategy Than Coinbase (Barron’s)
MicroStrategy’s Saylor Expects to Retain Appeal Even If Bitcoin ETF Is Approved (Bloomberg)
Second, the halving event that is anticipated to happen early next year may incentivize MicroStrategy to hold on to its Bitcoin. In past halving events, the price of Bitcoin has rallied ahead of the event. Knowing this, it seems unlikely that MicroStrategy will sell even if we see an early rally when a spot Bitcoin ETF does get approved. Some analysts predict that MicroStrategy may even buy more Bitcoin beforehand. So, the fact that MicroStrategy holds so much Bitcoin is likely to add buying pressures to the market. That may provide a boost for Bitcoin.
This is positive both for Bitcoin and the broader crypto market. With Bitcoin currently making up 50% of the total crypto market, any good news for Bitcoin is also good news for crypto.
Join Indicia Labs to stay up-to-date on the latest crypto intelligence, powered by you and your sentiment.
Indicia Labs does not provide investment, tax, or legal advice. You are solely responsible for determining the suitability of any investment, investment strategy, or related transaction based on your personal investment objectives, financial circumstances, and risk tolerance. Indicia Labs may offer educational information about digital assets, which may include blog posts, articles, third-party content, news feeds, tutorials, and videos. This information does not constitute any form of advice, and you should not rely on it as such. Indicia Labs does not recommend buying, earning, selling, or holding any digital asset and will not be responsible for any decisions you make based on the provided information. Any content provided by Indicia Labs may contain errors, inaccuracies, or outdated information and should not be relied upon for making any investment decisions and Indicia Labs and its affiliates hold no responsibility for the accuracy of the provided information or content.
As with any asset, the value of digital assets can fluctuate, and there is a significant risk of losing money when buying, selling, holding, or investing in digital assets. Consult your financial advisor, legal or tax professional regarding your specific situation and financial condition, and carefully consider whether trading or holding digital assets is suitable for you.
Indicia Labs is not registered with the U.S. Securities and Exchange Commission and does not offer securities services in the United States or to U.S. persons. You acknowledge that digital assets are not subject to protections or insurance provided by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation.