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Volatility is the very essence of cryptos. However, when it extends to giants like MicroStrategy, markets panic. With a colossal loss of $30 billion in four days, the iconic company of Michael Saylor finds itself at the center of all attention. This brutal fall raises questions about the robustness of Bitcoin-based strategies, while highlighting the fragility of leveraged investment mechanisms.
A violent correction with multiplied effects
The recent drop in Bitcoin, which reached a peak of nearly $99,800 on November 22 before falling back down, has caused ripples well beyond the cryptosphere.
MicroStrategy, often seen as a “proxy” for the first crypto, saw its market capitalization shrink by 35% in just four days. In absolute numbers, this represents a staggering loss of $30 billion, a record in the company’s history.
This correction has brought to light a worrying reality: the leverage that MicroStrategy benefits from acts as a double-edged sword.
When Bitcoin rises, the company outperforms market returns, displaying an impressive increase of 599% over one year, compared to 146% for Bitcoin.
But when the tide turns, the descent is just as spectacular. This extreme volatility, amplified by a massive influx of retail investors, raises doubts about the long-term viability of this model.
The numbers speak for themselves: just last week, retail investors injected nearly $100 million into MicroStrategy stock, according to The Kobeissi Letter. This tidal wave, fueled by daily purchases reaching up to $42 million, is eight times higher than the October average. Such exposure from retail investors accentuates the fragility of the stock in the face of the slightest fluctuations in Bitcoin.
MicroStrategy, a high-risk bet?
Despite this debacle, some continue to see MicroStrategy as a unique tool to play on Bitcoin’s volatility.
But at what cost? By aligning so closely with crypto, the company becomes a high-risk investment vehicle, where potential gains come at the price of almost total exposure to the ups and downs of the crypto market.
The involvement of large institutions like Allianz, which acquired 24% of the $600 million bonds issued by MicroStrategy in March, shows that this strategy also attracts institutional investors. However, the recent drop highlights an obvious limitation: even the strongest institutions are not immune to brutal fluctuations.
This situation also raises questions about the sustainability of leverage in an environment marked by increasing regulation of cryptocurrencies. If regulators decide to impose additional constraints, the domino effect could be devastating for players like MicroStrategy.
This story is a harsh reminder: investing in Bitcoin, directly or indirectly, is not for the faint-hearted. The correlation between MicroStrategy and Bitcoin is a magnifying mirror of the opportunities – and dangers – inherent in the crypto ecosystem.
Yet, Michael Saylor’s Bitcoin adventure is not over. The visionary continues to bet on a future where Bitcoin will reach heights yet unimaginable. But for investors, the lesson is clear: the lure of quick profits should never overshadow the importance of prudent risk management. In the meantime, Ripple bets $25 million on pro-crypto officials in the USA.
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Fasciné par le bitcoin depuis 2017, Evariste n’a cessé de se documenter sur le sujet. Si son premier intérêt s’est porté sur le trading, il essaie désormais activement d’appréhender toutes les avancées centrées sur les cryptomonnaies. En tant que rédacteur, il aspire à fournir en permanence un travail de haute qualité qui reflète l’état du secteur dans son ensemble.
DISCLAIMER
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.
