Usually, after a panic sell off like the selling we saw on both Friday and Monday, the market could have a substantial snap back rally to scare the short sellers.
However, I still see that the usual jump in volatility that usually occurs with temporary bottoms, has not happened yet.
Also, I am very concerned about the fact that Michael Saylor, who is the CEO of MicroStrategy MSTR ($155), has not only taken a major personal position in Bitcoin, but has also loaded his company’s balance sheet with this electronic asset. In fact, as recently as January 2022, he announced on Twitter that MSTR had made an additional multi million dollar purchase of bitcoins at $50,000 per coin, close to its all time high.
According to Bloomberg News: MicroStrategy‘s founder and Chief Executive Officer, Michael Saylor’s big bet on Bitcoin has backfired in a major way as the paper loss for his firm’s holdings of the largest digital asset has reached roughly $1 billion.
Now the risk to MSTR is that these purchases were made on margin, that is with borrowed money. Now with Bitcoin currently selling for under $26,000 per coin there is a significant risk to both the Bitcoin market and to MSTR stockholders, if the Bitcoin price drops below $22,000.
If MSTR gets a margin call, and it’s lender is forced to sell MSTR’s bitcoin portfolio at market, there could be a market churning event. As the old Wall Street story goes, when a broker is told by a client who has been a major buyer of one stock, and now needs to sell that stock. The client is told, Sell?, Sell to Who since you have been the major buyer.
This troubling scenario could also adversely effect TSLA, Elon Musk, and Morgan Stanley, all who have been major players in the Bitcoin market. Could be very nasty.
As Warren Buffett has said, “You don’t know who has been swimming naked, until the tide goes out.”