Original Author: Kyle

Original Author: Kyle

This week, the encrypted asset market encountered a "waterfall" market. Bitcoin (BTC) once fell from above US$28,000 to US$20,845, a drop of more than 20%. The total market value of global encrypted assets subsequently fell below $1 trillion, the first time since January 2021.

BTC took the lead in "diving", and the institutions that created the last bull market in the encrypted asset market ushered in a moment of loss. According to statistics, after this sharp drop, the price of BTC was lower than the cost of holding positions of MicroStrategy, a listed company in the United States for the first time. The company has purchased 129,200 BTCs in the past two years, and the cost price is about 30,700 US dollars per piece. At current prices, MicroStrategy's paper losses have exceeded $1 billion.

Affected by this, MicroStrategy stock (MSTR.US), which is highly correlated with the price of BTC, fell sharply. After the U.S. stock market opened on June 13, MicroStrategy’s stock price fell 25%, hitting its lowest point since September 2020.

During the bullish period of BTC, MicroStrategy had a large book profit, but now the floating profit has turned into a floating loss. Since the company has repeatedly raised funds to invest in BTC by issuing bonds and loans, when the bear market comes, the financial pressure it faces suddenly increases.

In addition to MicroStrategy, Tesla, Block and other companies holding encrypted assets are now facing unrealized losses of 15% to 30%. El Salvador, the Central American country that made BTC a legal currency last year, suffered even more losses. According to statistics, the country has accumulated 2,301 BTC reserves, with an average purchase price of around US$45,100, and the current floating loss is about 50%.

As the decline of BTC slows down, people inside and outside the encryption world are watching - how will the crazy MicroStrategy respond to the unpredictable market?

"If Bitcoin does not return to zero, then it will reach $1 million." On June 7, Michael Saylor, CEO of MicroStrategy, a US-listed company, emphasized his bullishness on BTC in an interview. He said that in a very uncertain world, Bitcoin is the most certain thing, "it is more certain than 19,000 other cryptocurrencies and any stock, more certain than owning property anywhere in the world."

MicroStrategy CEO Michael Saylor

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However, a few days later, BTC staged a "diving" scene, a big step away from the $1 million that Michael Saylor said.

On June 13, the MSCI global stock index fell sharply, and BTC opened at a price of $28,090, but fell all the way. On the same day, BTC fell as low as $22,590, closing at $23,270, with the largest drop of 17.16% within the day. The next day, BTC continued to drop, falling to $20,845 at one point, a drop of more than 10%. As of 4:00 p.m. on June 14, BTC rebounded to $22,800, narrowing the intraday decline to less than 2%.

According to CoinGecko data, BTC's decline is the first time since December 2020 that it has fallen below $23,000. At the same time, the total market value of global encrypted assets has also fallen below $1 trillion, the first time since January 2021.

Industry analysts generally believe that as major central banks around the world have tightened monetary policies to fight inflation, global market liquidity has declined, and the decline in encrypted assets has become a symbol of flight from speculative assets. As the Federal Reserve continues to raise interest rates, it is difficult for the encrypted asset market to perform strongly in the short term.

After this round of slump, MicroStrategy, which has long shown itself as a "BTC iron bull", has attracted much attention. The U.S. stock-listed company has increased its holdings of BTC in the past two years, and has continuously released signals that are optimistic about the BTC market.

According to MicroStrategy's latest quarterly filing with the U.S. Securities and Exchange Commission (SEC), the company's average purchase price for BTC has continued to rise since 2020, reaching $30,700 per coin as of March 31. According to Okey Cloud Chain statistics, the number of BTC held by MicroStrategy has reached 129,200. Based on this calculation, the company has invested nearly US$4 billion in purchasing BTC.

However, as the crypto asset market turned from bull to bear, BTC has fallen from a high of $69,000 to $22,800. If MicroStrategy did not cash out during the book profit period, its position value would decrease to $2.945 billion, with a floating loss of more than 1 billion Dollar.

Affected by this, the stock of MicroStrategy (MSTR.US), which is highly correlated with the price of BTC, also fell sharply. After the U.S. stock market opened on June 13, the company’s stock price fell 25%, falling as low as $143.9, the lowest point since September 2020.

The bear market is approaching, and the pressure on institutional positions increases sharply

From a large amount of floating profit "dead money" to a floating loss of more than 1 billion US dollars, MicroStrategy's strategy of "gambling" BTC is currently a "mistake". In view of the further downside risks of the encrypted asset market, institutions such as MicroStrategy that hold encrypted assets are facing a sharp increase in pressure.

As a BI (Business Intelligence) software and service company, MicroStrategy has added BTC to the company's balance sheet to hedge against inflation since August 2020. As a result, continuous buying of BTC has almost become the company's "main business".

As a loyal believer in Bitcoin, MicroStrategy CEO Michael Saylor once said that the company's slogan is "HODL (Hold)" for a lifetime, so it will only buy and hold BTC, and will never sell BTC. "Continuously accumulating the BTC we hold is the most important goal."

MicroStrategy is paranoid about buying BTC. From the end of 2020 to the beginning of 2021, the company issued a total of US$1.05 billion in convertible bonds, and invested the proceeds of the financing in BTC; in June 2021, the company issued another US$500 million in junk bonds to raise funds for "coin speculation"; In March, a subsidiary of MicroStrategy used BTC worth 820 million U.S. dollars at the time as collateral, and obtained a loan of 205 million U.S. dollars to buy more BTC. This is the first time the company has bought BTC with a loan.

Repeated issuance of bonds and loans to purchase BTC have put MicroStrategy on the verge of financing difficulties and credit downgrades. Standard & Poor's Global Ratings has rated the company's issuer credit rating as "CCC+", which is below the "investment grade" rating standard. Even so, in April of this year, the company still emphasized in a letter to investors that it does not intend to rest on the way to buy and hold Bitcoin for a long time, and will continue to buy BTC.

Notably, during the market drop on June 13, on-chain data showed that MicroStrategy transferred 2,089 BTC to a new wallet, the first time the company had moved BTC. Encryption analyst CryptoWhale analyzed that this move may mean that MicroStrategy plans to sell its BTC holdings. For this speculation, Michael Saylor did not respond directly, but tweeted "In Bitcoin, We Trust" on Twitter, which seemed to convey his determination to hold.

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Michael Saylor Expresses Trust in BTC During Fall

MicroStrategy is not alone in being affected by the decline in the crypto asset market. Companies such as Tesla and Block (formerly Square), founded by Twitter founder Jack Dorsey, were also inevitably hit. In addition, El Salvador, the Central American country that made BTC a legal tender last year, also lost money.

It is estimated that if Tesla did not buy or sell BTC in the second quarter of this year, the company would hold about 42,000 BTC, with an average cost price of $31,600, and the current unrealized loss is about 27.8%. While Block holds 8027 BTCs, its holding cost is $27,400, and its unrealized loss is about 16.8%. El Salvador reserves 2,301 BTCs, with an average purchase price of $45,100, and is currently at a loss of about 50%.

Faced with the sharp drop in BTC, the pressure on institutions holding positions has increased, and El Salvador's financial health has also aroused concerns from the outside world. In response, Alejandro Zelaya, Minister of Finance of El Salvador, responded that the financial risk brought about by the BTC collapse is extremely small, and its investment loss does not even account for 0.5% of the total national budget.

Having said that, after this round of "big dive" in the encrypted asset market, whether it is El Salvador or MicroStrategy and other companies, the cost of holding positions has already exceeded the current currency price, and their respective mentalities in the face of encrypted assets may also change.