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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.
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.
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.
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.