Tech stocks linked to Bitcoin take a battering as crypto traders brace for Strategy to breach danger threshold

Tech stocks linked to Bitcoin staged a modest comeback in overnight trading, although it wasn’t enough to wipe away the losses they suffered yesterday. The market remains on edge as Bitcoin has lost 21% over the past month. In recent days, it has stabilized at around $87K per coin and was up 0.72% today. Crypto trading platform Coinbase was down 4.76% yesterday but was up 1.37% in overnight trading, while Robinhood was down 4.09% yesterday and then crept up 0.63% this morning, premarket. 

But the elephant in the digital asset room is Michael Saylor’s Strategy, the leading Bitcoin treasury company, whose stock market cap is now worth less than the Bitcoin it holds. It dropped 3.25% yesterday but was up 0.45% before the bell.

Strategy’s market cap was $50.6 billion at the time of writing, and its 650,000 Bitcoins were worth $56.7 billion. The key metric for Strategy, however, is its “mNAV” (multiple to net asset value), which is a ratio describing the company’s theoretical enterprise value (currently $65.2 billion) to its Bitcoin holdings. That ratio was 1.15 this morning, meaning its enterprise value is worth 15% more than its Bitcoin.

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However, if the mNAV falls below one, then Strategy faces a crisis: The reason for holding the stock vanishes, and no one will be likely to provide the company with more capital—a period of fierce selling could ensue.

The situation was made more tense after Strategy CEO Phong Le said on a podcast that the company would be willing to sell some of its Bitcoin in order to meet the dividend commitments on its debt and preferred shares. “Now, as we are looking at Bitcoin winter, as we see our mNAV compressing, my hope is our mNAV doesn’t go below one,” he said. “But if we do, and we didn’t have other access to capital, we would sell Bitcoin.” 

On Monday, the company published an investor presentation which confirmed (on page 11) that it will begin selling Bitcoin if the mNAV falls below one.

The statements were extraordinary because Saylor, the founder, has repeatedly said he would never sell. Strategy currently holds just over 3% of all Bitcoin. If it was forced to sell in order to raise cash, that too would likely start an avalanche. (The company did not immediately respond when contacted for comment.)

Traders betting on leveraged plays against Strategy have already been wiped out. Two exchange-traded funds, MSTX and MSTU, which offered double the returns of the underlying Strategy stock, have lost more than 80% of their value, according to Bloomberg. Together with a third, MSTP, they have lost $1.5 billion in value over the past month.

Strategy shares declined Tuesday after the company said it had created a $1.44 billion “U.S. dollar reserve” to fund its dividends, and had enough cash to survive the next 12 to 24 months, according to theFinancial Times.

Some crypto investment experts have a negative outlook. Patrick Horsman, chief investment officer at BNB Plus, another crypto treasury company, told theWall Street Journal,“I think we could see Bitcoin get all the way back to $60,000 … We don’t think the pain is over.”

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

• S&P 500 futureswere up 0.24% this morning. The last session closed down 0.53%. 
• TheSTOXX Europe 600was up 0.35% in early trading. 
• The U.K.’sFTSE 100was up 0.38% in early trading. 
• Japan’sNikkei 225was flat.
• China’sCSI 300was down 0.48%.
• The South KoreaKOSPIwas up 1.9%. 
• India’sNifty 50is down 0.55%. 
• Bitcoinwas at $87K.

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