Published: August 7th, 2024
Major American crypto stocks suffered steep declines at the opening bell of this week's trading session, mirroring a slump in the wider market for digital assets.
The downturn has been triggered by a number of factors arriving in parallel, including regulatory worries, geopolitical tensions and macroeconomic uncertainties. The combined effect has sent a chill across through the cryptocurrency ecosystem.
Data from MarketWatch shows that major Bitcoin holder MicroStrategy (MSTR) saw its stock price decline by 30 per cent, while the Coinbase (COIN) cryptocurrency exchange was hit by a 20 per cent fall in its stock price.
Publicly listed Bitcoin miners weren't immune to the broader slump. Both Riot Platforms (RIOT) and Marathon Digital (MARA) suffered declines of 13.5 per cent and 18 per cent, respectively. Iris Energy (IREN) and Hut 8 (HUT) saw their stock prices plummet 27 per cent and 19.2 per cent as the week's trading session got underway.
The sharp decline in crypto-related equities is connected directly to the downturn in crypto markets, triggered by negative sentiment and growing fears of a looming worldwide recession. Crypto’s recent bad run is part of the broader global sell-off impacting stock markets around the globe.
Asian stock markets felt the pain first, with Japan's Nikkei 225 index plummeting over 12 per cent in one day. South Korea's KOSPI and Taiwan's Taiex also experienced crushing one-day losses. The negativity radiated outward to European markets, with Britain’s FTSE 100 and the STOXX Europe 600 indices both starting the week lower.
At the start of this week's session, Bitcoin was trading at USD 51,450, a significant 15.5 per cent drop over 24 hours and a 28 per cent decrease over the previous seven days. At time of writing it had regained some ground, rising to USD 57,181.
In September of 2023 MicroStrategy, already the world’s number one corporate holder of Bitcoin, announced its latest acquisition of the market’s largest cryptocurrency. MicroStrategy made an SEC filing on Monday stating the firm and its subsidiaries had bought approximately 5,445 Bitcoin in early August. The total cash value was listed at USD 147.2 million. At the time, Bitcoin was trading hands at approximately USD 27,051 per coin.
With that purchase, MicroStrategy had stuffed its vault to roughly 158,245 BTC. Analysis by CoinGecko put the average purchase price at circa USD 29,580. Using figures provided in the filing, the aggregate purchase price paid by MicroStrategy for its BTC holdings to be USD 4.67 billion.
While the company’s continuing accumulation of Bitcoin supports its public pronouncements in support of the asset, calling it both a store of value and an appreciable long-term asset, any chill affecting crypto markets threatens to push its BTC balance sheet into the red. That’s especially true of historical investments made when Bitcoin was riding high near the USD 60,000 mark.
As if on cue, Bitcoin was down 1.6 per cent on the day the announcement, trading just north of USD 26,090. That placed the total Bitcoin held by MicroStrategy at circa USD 4.1 billion.
In June 2023, the firm purchased 12,330 BTC for USD 346 million. The average purchase price for one coin at the time was USD 29,667.
MicroStrategy began its cryptocurrency acquisition in August of 2020, with co-founder and CEO Michael Saylor saying that the firm's main motivation was to hold BTC as an inflation hedge.
Earlier in 2022, Saylor said the company remains committed to its approach, which is to keep buying and holding Bitcoin over the long term.
‘What’s important for us is to be transparent, responsible and consistent.’
Saylor and MicroStrategy have often been at the forefront of BTC adoption, paving the way for risk-averse corporates and institutions to extend their Bitcoin exposure.
When forex traders went bear-ish on BTC in March 2020, a major corporate buy from MicroStrategy played a huge part in returning liquidity to crypto markets. It kicked off a slow but steady appreciation that accelerated in 2021, sending BTC's above USD 60,000.
When Elon Musk purchased Twitter in April of 2022, MicroStrategy CEO Michael Saylor offered Musk congratulations via Twitter, quoting the American Constitution’s first amendment, which guarantees that governments can't place limits on free speech.
Saylor’s very public show of support amid controversy about how Musk would run the social network helped drive up the price of DOGE (then rumoured to become a form of payment on Twitter) by 24 per cent.
Traditional finance has definitely needed to be won over. As recently as January of 2022, analysts at Wall Street stalwart JP Morgan published a report saying Bitcoin would struggle to win over new institutional investors due to its volatility.
In a note to investors, Morgan analysts said they saw 'notable challenges' in the coming months for crypto’s biggest coin.
Bitcoin's volatility made it five times more prone to price swings than gold, and the raft of competitors lining up to take a chunk out of Ethereum's market share means its steady rise could be halted or even reversed.
On a more positive note, the market missive also said that the current crypto price slide looked to be 'less dire than the plunge seen in May 2021,' when prices crashed the combined crypto market cap by billions in a single week.
'It's our view that Bitcoin's most significant challenge going forward is its inherent volatility and the cycles of boom & bust cycles that make extended institutional adoption less likely.
The note said that BTC, which was down 43 per cent from an all-time high of USD 69,000 reached in November 2021, was also more volatile than gold by a factor of five. That belies the claims of many cryptocurrency commentators who frequently refer to BTC as 'digital gold,' offering hedge protection against inflation similar to what the yellow metal has traditionally provided to investors.
