“Strategy’s 650,000 BTC holdings make it a ‘pressure valve’ for the broader market, said the Bitmine Immersion chairman.”, — write: www.coindesk.com
“[Strategy] is probably the most important stock watch right now, because that is the bitcoin proxy, it’s the most liquid name,” Lee said in an interview with CNBC on Thursday.
With limited options to hedge losses directly in crypto markets, institutional traders have turned to shorting Strategy shares instead. The company holds nearly 650,000 bitcoins BTC$86,095.02making its stock price closely tied to bitcoin’s performance.
“It seems to me that in the crypto world when they’re trying to hedge their loss in bitcoin and ethereum they can’t find any other way to hedge it except shorting the liquid stocks that it proxies and that’s the MicroStrategies,” Lee said.
He added that crypto-native hedging tools, like derivatives on bitcoin and ether ETH$2,819.69aren’t liquid or deep enough for major players. “Anyone who has a sizable bitcoin long position … they have very limited ability to hedge it in crypto derivatives,” he said.
But Strategy, he explained, offers a workaround. “Somebody can use [Strategy’s] option chain which is so liquid to hedge all of their crypto.”
In effect, he said, “[Strategy] is essentially absorbing all the hedging pressure that the crypto industry is trying to do to protect their longs.”
Lee also pointed to the lingering effects of the Oct. 10 market crash, which wiped out $20 billion in value and disrupted liquidity across exchanges. “It really crippled market makers,” he said, describing them as the “central bank” of crypto.
Since then, cracks in the system have remained, with liquidity still thin across altcoins, miner stocks and bitcoin proxies like Strategy. MSTR has been among the hardest hit in the current downturn, which Lee believes is partly due to it serving as a pressure valve for the rest of the market.
He believes crypto’s market plumbing remains fragile, and Strategy’s role as a hedge is a sign of deeper structural issues.
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Michael Saylor’s company’s balance sheet isn’t at imminent risk of collapse, but further capital-raising efforts could surely be hindered unless conditions improve.
- Despite volatility, Strategy’s balance sheet faces no immediate stress, and the main pressure point sits about 18 months away when the first put option on the company’s convertible notes becomes exercisable.
- Performance has diverged across the preferreds, with the STRF and STRC series trading above issue, while STRK and STRD sit meaningfully below their launch prices.
- Management has multiple options should the bitcoin market remain under stress, but use of any is likely to hinder future capital-raising efforts.
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