MicroStrategy Leads Crypto Stock Slump as Bitcoin Ricochets

MicroStrategy Inc. sank, leading a slump in cryptocurrency-exposed stocks, as Bitcoin tumbled below the $30,000 key level for the first time in five months.

The enterprise software company fell as much as 12%, its steepest intraday decline since May 19, before closing down 4.5% on Tuesday. Shares of other crypto-linked firms also stemmed their losses as Bitcoin recovered after earlier wiping out its entire gain for this year. The cryptocurrency is down 0.5% at 4:07 p.m.

Shares of MicroStrategy -- which has been making a bullish bet on Bitcoin by accruing debt to snap up the cryptocurrency -- are down 57% from early February when it reached a 20-year high.

MicroStrategy plummeted for a second session after revealing it bought $489 million of the virtual currency on Monday. The coin’s plunging value may trigger a writedown for the tech company, which has become one of the strongest corporate advocates for Bitcoin.

The market should shrug off such impairments as they don’t impact cash or the ultimate valuation of the company, according to BTIG analyst Mark Palmer.

“The maturities on the company’s debt are several years out,” he said by phone. “There’s no near-term threat or implication, even if the price of Bitcoin goes into the teens.” Palmer views the recent drop as an opportunity to add to positions.

The company’s $500 million of junk-rated bonds issued earlier this month dropped to a new low of 97.75 cents on the dollar on Tuesday, according to Trace bond pricing data. Holders of those bonds have a claim on substantially all of the company’s business assets, in addition to the recently purchased Bitcoin.

MicroStrategy’s Bitcoin holdings are worth over $3 billion at Tuesday’s prices. The company said on Monday the virtual currency was bought at an average of $26,080 per coin.

With Bitcoin testing $30,000 stocks with ties to the virtual currency industry were also in thrown for a loop on Tuesday.

Ebang International Holdings Inc. and Marathon Digital Holdings Inc. each fell about 12% before paring losses to close down 8.1% and 1.8%. Other crypto-tied names like DMG Blockchain Solutions Inc., Riot Blockchain Inc. and Diginex Ltd. also slumped throughout the day, among them only Riot ended the day higher with a 2.1% gain.

MicroStrategy Leads Crypto Stock Slump as Bitcoin Ricochets

Elon Musk’s tweets about energy consumption in crypto mining last week have also whipsawed the market and the cryptocurrency has slid for the past three days over regulatory worries and a China clampdown. Musk’s Tesla Inc. as well as Square Inc., like MicroStrategy, hold Bitcoin.

BTIG’s Palmer remains optimistic, even China’s crackdown on Bitcoin mining could eventually be a positive with mining operations migrating to the West where they could also become more energy efficient.

“We’re in a transition period and transition periods come with uncertainty, uncertainty creates volatility,” he said. “This is a nascent asset class. It’s nowhere near maturity at this point. It was inevitable that there would be some transitions that need to occur in order for it to be on more stable footing for the long term.”

©2021 Bloomberg L.P.

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