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JPMorgan warns of MicroStrategy’s Bitcoin dark future

TL;DR

  • MicroStrategy made headlines with its substantial Bitcoin investments financed by debt. JPMorgan analysts caution that such aggressive purchases could exacerbate economic downturns in the future.
  • Since the start of 2024, MicroStrategy has acquired Bitcoin worth $821 million during the period from February 26 to March 10. 
  • Too much leverage in the Bitcoin rally worries some commentators. Galaxy CEO and crypto enthusiast Mike Novogratz expects the coin to grow after a pullback to $50,000.

MicroStrategy’s significant purchases of Bitcoin, primarily through debt financing, have garnered attention due to their potential implications in the event of a future downturn. According to a report by JPMorgan, the large-scale acquisition of Bitcoin using borrowed funds raises concerns about exacerbating the impact of a market downturn. 

MicroStrategy should probably give up buying more Bitcoin

JPMorgan stated that while bitcoin has been soaring to new all-time highs, a future correction could be exacerbated by the enormous exposure of one bullish firm. Since the start of the year, MicroStrategy has acquired Bitcoin worth $821 million during the period from February 26 to March 10. This purchase was financed by the sale of $1.2 billion in senior convertible notes.

“We believe debt-funded bitcoin purchases by MicroStrategy add leverage and froth to the current crypto rally and raise the risk of more severe deleveraging in a potential downturn in the future,” JPMorgan analysts led by Nikolaos Panigirtzoglou.

Senior convertible notes, which can be converted into company stock, are a form of bond. In addition, these instruments are classified as debt securities due to the fact that the issuer guarantees interest payments to investors, who are also repaid prior to the repayment of other debts in the event of a company’s demise.

The investment banking behemoth’s remarks coincide with a massive crypto rally, which is currently underway and is being led by Bitcoin, which has reached a new all-time high of $73,500.

As of this writing, the current value of Bitcoin (BTC) is $67,926.79, reflecting a 0.6% increase from one hour ago and a 6.6% decrease since yesterday. The present value of Bitcoin is 0.2% greater than its value from seven days ago.

Today’s global crypto market cap is $2.69 trillion, representing a change of -142.42% a year ago and -6.85% over the last 24 hours. At the present moment, BTC holds a market cap of $1.33 trillion, signifying a dominance of 49.42%. Stablecoins, meanwhile, have a market cap of $149 billion, or 5.52%, of the total crypto market cap.

Big players in the BTC bull run

JPMorgan asserts that MicroStrategy significantly contributed to the upswing, having essentially converted itself into a leveraged BTC wager.

Since mid-March, the firm, which was established by cryptocurrency advocate Michael Saylor, has amassed 205,000 bitcoins in total, a hoard that is now valued at more than $14 billion. 

The accumulation of this hoard has emerged as a central strategic objective for the organization, as Saylor frequently declares intentions to procure an excessive quantity of bitcoin.

MicroStrategy, per JPMorgan, has reportedly acquired an additional $1 billion worth of BTC this year, in addition to a comparable acquisition made in the fourth quarter. Saylor previously explained that the organization used leveraged BTC investments to fund these acquisitions.

Additional analysts are concerned that the BTC rally has used an excessive amount of leverage. Mike Novogratz, CEO of Galaxy and a crypto devotee, predicts the token will rise further in the future, but only after a correction to approximately $50,000.

As a result, numerous leverage-obsessed retail investors have been drawn to the new ETFs, which is unsustainable.

Saylor has long advocated for BTC and the crypto ecosystem. He predicted that BTC’s market dominance would only increase this year, citing the ongoing regulatory enforcement as the reason why a number of competing cryptocurrencies would be eliminated.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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