Volatility is the very essence of cryptos. However, when it extends to giants like MicroStrategy, the markets panic. With a colossal loss of $30 billion in four days, Michael Saylor's iconic company finds itself at the center of all attention. This sharp fall raises questions about the strength of Bitcoin-based strategies, while highlighting the fragility of leveraged investment mechanisms.
A violent correction with multiplied effects
Bitcoin's recent decline, which peaked near $99,800 on November 22 before falling again, has caused ripples far beyond the cryptosphere.
MicroStrategy, often perceived as a “proxy” of the first crypto, saw its capitalization melt 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 highlighted a worrying reality: the leverage enjoyed by MicroStrategy acts like a double-edged sword.
When Bitcoin rises, the company outperforms market returns, for example posting an impressive 599% year-over-year rise, compared to 146% for Bitcoin.
But when the wind changes, 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: Last week alone, retail investors pumped 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 on the part of individuals accentuates the fragility of the action 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 for playing on Bitcoin's volatility.
But at what cost? By aligning itself so closely with crypto, the company becomes a high-risk investment vehicle, where potential gains come at the price of near-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 fall 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 stark reminder: investing in Bitcoin, directly or indirectly, is not for the faint of heart. The correlation between MicroStrategy and Bitcoin is a magnifying mirror of the opportunities – and dangers – inherent in the crypto ecosystem.
However, Michael Saylor's Bitcoin adventure is not over. The visionary continues to bet on a future where Bitcoin will reach unimaginable heights. But for investors, the lesson is clear: the lure of quick profits must never obscure the importance of prudent risk management. Meanwhile, Ripple is betting 25 million for pro-crypto elected officials in the USA.
Maximize your Tremplin.io experience with our 'Read to Earn' program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
