MicroStrategy has amassed a 205,000 Bitcoin corporate treasury worth nearly $14 billion at current market prices. It's almost enough to have kept pace with the $15 billion worth of Bitcoin that BlackRock has bought up to back shares of its 's iShares Bitcoin Trust.
But there's reason to worry about the way the company has been buying BTC, say JP Morgan analysts.
"We believe debt-funded bitcoin purchases by MicroStrategy add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future," JPM analysts led by Nikolaos Panigirtzoglou wrote on Thursday.
JP Morgan's Jamie Dimon: 'I'll Defend Your Right to Buy Bitcoin'
JP Morgan Chase CEO Jamie Dimon still doesn't like Bitcoin—but he respects your decision to invest in it. Wall Street's top banker has been a long-critic of the cryptocurrency, claiming that the "true use case for it is criminals, drug traffickers, money laundering, tax avoidance." Even today, at the Australian Financial Review business summit, the boss of America's biggest bank continued to criticize the asset, according to Reuters. But he added: "I don't know what the Bitcoin itself is for, bu...
MicroStrategy Chairman Michael Saylor has been lauded by laser-eyed Bitcoiners for his aggressive strategy.
"It's the best investment asset. So the endgame is to acquire more Bitcoin," he recently told Yahoo Finance. "Whoever gets the most Bitcoin wins. There is no other endgame."
Saylor and MicroStrategy—which trades on the Nasdaq under the MSTR ticker—are no strangers to using Bitcoin as collateral to borrow cash and buy more Bitcoin. In the latest round earlier this week, MicroStrategy said it's offering up to $500 million worth of convertible senior notes due in 2031 to buy more BTC.
MicroStrategy Seeks $500 Million to Snatch Up Even More Bitcoin
Software firm and newly branded "Bitcoin development company" MicroStrategy has announced another proposed private sale to buy up even more Bitcoin. In a Wednesday announcement, the company said it plans to offer $500 million worth of convertible senior notes to institutional buyers, due in 2031, in order for the firm to buy additional cryptocurrency. The company last week said it would offer a private sale of $600 million worth of convertible senior notes in order to purchase more Bitcoin. Mic...
But there's not yet record-high amounts of leverage in the market.
Leverage refers to the ability to borrow funds to amplify the returns of an investment. For instance, a trader might use 5x leverage to open a $500 Bitcoin futures contract with only $100 worth of BTC in their exchange account.
But leverage cuts both ways. It can maximize profits and exacerbate losses.
In the U.S., leverage trading, especially with high ratios, faces lots of regulatory restrictions for this reason. For instance, crypto trading platforms like Coinbase and Kraken are permitted to offer leverage, but only up to 10x and 5x respectively, which is conservative compared to other countries.
The notional open interest of Bitcoin futures contracts recently reached an all-time high of $34 billion, signaling a surge in optimism about Bitcoin's price rally.
Crypto Leverage ‘Is Only a Problem’ When it Impacts Traditional Finance: EU Watchdog
Crypto contagion risk is low today, but a European watchdog is keen to keep it that way. A new report from the European Systemic Risk Board (ESRB) found that the industry’s economic impact is minimal, but recommends policy options that would allow EU bodies to better monitor the crypto sector and mitigate any risks. Among other suggestions, such as actively monitoring contagion and education, the ESRB also highlighted the importance of monitoring leveraged trading in the crypto industry. “Levera...
Despite the optimism, leverage used in the market is still a moderate 0.20, according to CryptoQuant. That means there's not yet a high risk of widespread liquidations that could potentially trigger a market crash. Bitcoin leverage last peaked at 0.40 in October 2022.
And actual open interest measured in BTC units is way below the high of 667,550 BTC seen in October 2022. Current open interest expressed in BTC is has only reached 496 BTC, according to CoinGlass. That suggests that while leverage is present, it hasn't reached alarming levels that could indicate a bubble or imminent correction.
