The general market faced a setback after the announcement of new tariffs by Donald Trump, impacting Strategy (formerly known as MicroStrategy) as well.
Impact on Strategy’s Stock
The company’s stock has gone down by around 16% since the beginning of the year, following a similar trend to Bitcoin’s ongoing adjustment.
Being a significant holder of Bitcoin, Strategy presently possesses about 499,096 BTC, valued at $43.7 billion.
However, with an average buying price of $66,350 per Bitcoin, the company is now under increasing pressure as Bitcoin struggles to pick up pace.
The recent downturn has raised concerns about the sustainability of institutional Bitcoin investments and whether Strategy’s aggressive accumulation strategy will yield positive results in the future.
Commenting on this, The Kobeissi Letter, a market analysis agency, pointed out,
Effect on Leveraged ETFs
The significant decline has had repercussions on leveraged ETFs associated with Strategy. Both MSTX and MTSU have plummeted almost 50% in the past five days.
These ETFs, which were trading over $43 and $9 per share just last week, witnessed substantial declines as trading volumes surged.
Currently, MSTX is at $23.83 per share, while MTSU has dropped to $4.94, according to Yahoo Finance.
Leveraged ETFs, established to increase returns through derivatives and borrowed funds, offer higher profit prospects but also come with elevated risks, especially during market instabilities.
Geoffrey Kendrick, the Global Head of Digital Assets Research at Standard Chartered, noted that the ongoing downturn is in line with a broader aversion to risk in traditional financial markets, which heightens volatility in the cryptocurrency market.
Strategy’s Approach to Bitcoin
Since 2020, Strategy has been actively accumulating Bitcoin, spending over $33 billion to purchase BTC at an average cost of approximately $66,000 per coin.
This strategic investment has led to an unrealized profit surpassing $10 billion, as per MSTR Tracker data.
The company has predominantly financed these acquisitions through a mix of stock offerings and $9.5 billion in convertible bonds, with most obligations maturing in 2027 or later.
This extended debt structure significantly reduces the risk of a rushed Bitcoin sell-off during short-term price declines, as per The Kobeissi Letter, offering Strategy a robust financial buffer in times of market turbulence.
“For such a scenario to materialize, Bitcoin would need to decline well over 50% from current levels and stay there” until 2027 and beyond, they mentioned.
Glimmers of Optimism
With the market displaying signs of improvement, Strategy’s stock price could potentially recover in the upcoming days.
On February 23rd, Michael Saylor hinted at potential Bitcoin purchases by sharing a BTC tracker on X (formerly known as Twitter), a move typically preceding significant acquisitions.
This enigmatic post has triggered speculations that recent Bitcoin transactions by Strategy might not have been fully reflected in its holdings yet.