Bitcoin has slightly retreated from its peak on Friday, though related financial stocks faced even heavier losses.
Key Insights:
- MicroStrategy led by Michael Saylor saw its shares drop by 6% on Friday, which is a stark contrast to Bitcoin’s more moderate decline of just over 2%.
- Other companies involved in Bitcoin treasury strategies are experiencing greater setbacks than the drop in Bitcoin’s value would indicate.
- This trend is raising concerns among market participants regarding the risks associated with companies leveraging debt to acquire Bitcoin.
On Friday, stocks associated with cryptocurrencies had a difficult day, particularly companies like MicroStrategy and Semler Scientific, both of which saw around a 6% drop as Bitcoin (BTC) itself fell slightly above 2%. Notably, Japan-listed Metaplanet experienced a dramatic 24% decline.
The overall situation looks bleaker when viewed from a broader perspective: shares of MSTR were trading at $376 by Friday afternoon, marking more than a 30% drop from its all-time high reached at the end of 2024 while Bitcoin has surged to a new record this week.
Social Media Dialogue
Discourse on social media regarding the viability of strategies employed by Michael Saylor and similar firms to acquire Bitcoin using debt is ongoing. A well-known Twitter user expressed,
“Bitcoin treasury companies are trending this week. MSTR, Metaplanet, Twenty One, Nakamoto. I think their toxic leverage is the worst thing that has ever happened to Bitcoin and what it represents.”
According to this user, the financial practices of firms like MicroStrategy rely heavily on a metric called mNAV, which contrasts a company’s market valuation to its asset value, particularly their Bitcoin reserves. As long as their mNAV stays above 1.0, these firms can continue to attract capital to purchase more Bitcoin, appealing to investors willing to pay a premium for these stocks.
However, if mNAV falls below this threshold, the company’s value dips beneath its asset value, complicating efforts to raise funds or service existing debts.
Lessons from the Past
This pattern resembles the situation of Grayscale’s Bitcoin Trust (GBTC) before its transition to an ETF, where the premium it held during market peaks eventually turned into significant discounts during downturns, resulting in extensive financial repercussions across the market.
Nic Carter from Castle Island Ventures likened the current dynamics to GBTC’s history, stating,
“The entire game now revolves around understanding how much BTC these vehicles will accumulate and timing their potential liquidation.”
This discussion also received input from advocates of MSTR, including Adam Back, who suggested strategies for managing shareholder interests amidst mNAV fluctuations.
