Under the continuous radical "shrinkage" of the Federal Reserve, the cold winter of digital currency and related stocks is coming, and the decline seems difficult to reverse. On Thursday, bitcoin plunged about 11% to below $26200, a new low since December 2020. Ethereum fell 16% to less than $1800 per piece, breaking the new low since July last year. Terrausd, a stable currency, had plummeted by 30%, triggering a flight of investors in the digital money market.
Stocks related to digital currencies are also doomed, including the well-known MicroStrategy company MicroStrategy. MicroStrategy is the world's largest listed company holding bitcoin.
MicroStrategy began to add bitcoin to its corporate balance sheet for the first time in 2020 and has continued to buy since. According to the documents of the U.S. Securities and Exchange Commission (SEC), micro strategy company purchased bitcoin worth US $215 million in the first quarter of this year. The average purchase price of each bitcoin was US $44645, bringing its total holding of bitcoin to 129218, and the purchase cost was US $3.97 billion, or US $30700 per bitcoin.
The decline accelerated after bitcoin fell below the purchase price of MicroStrategy So far, it has fallen by about 70% during the year, and the stock price has fallen by nearly 90% compared with its peak of $1315 set in February 2021. This week alone, the share price of the stock was halved from last week's closing point
At a time when US inflation remained high and investors were worried that the overall economy might enter recession, the market accelerated its shift to safe haven mode. After the terrausd crash and the poor financial results of coinbase, the prospect of digital currency does not look good.
For MicroStrategy, worse may still be ahead Because the company had raised billions of dollars in debt to promote its purchase of bitcoin MicroStrategy's basic software business does not have enough profits to repay these debts, so the success of the company's highly leveraged bet on cryptocurrency depends entirely on the rise in bitcoin prices.
The market has reflected concerns about MicroStrategy debt. The company's convertible bonds, due in 2027, traded at 60 cents earlier this week.
**If bitcoin falls below $21000, MicroStrategy will receive a margin call from its loan** According to the comments of phone Le, chief financial officer of MicroStrategy, on the company's recent earnings conference call, this will force the company to either provide more collateral for loans or sell some of its bitcoin holdings. "We make loans at the loan ratio of 25%, and the margin recovery occurs at the loan ratio of 50%. Therefore, basically, bitcoin needs to be halved or about $21000 before we have additional margin."
Earlier this year, Michael Saylor, CEO of MicroStrategy, said he would never sell MicroStrategy bitcoin. But if bitcoin continues to fall, he may have no choice**
MicroStrategy's latest financial report shows that its net loss in the first quarter expanded to $130.8 million from $110 million in the same period last year, due to the inclusion of a $170.1 million bitcoin impairment charge. Earlier this year, the SEC said it would not be allowed to exclude the impact of sharp fluctuations in bitcoin prices from its results through unofficial accounting methods previously sold to investors.