MicroStrategy Wants to Buy $400m Worth of Bitcoin – Bitcoin Moves #23

Bitcoin Moves OKCoin Bitcoin weekly market report. - BTC price

MicroStrategy Wants to Buy $400m Worth of Bitcoin – Bitcoin Moves #23

Bitcoin is trading sideways as analysts provide warnings in the short term but the asset continues to garner further institutional support

Bitcoin’s price action has been relatively muted compared to last week, when the leading cryptocurrency set a new all-time high. BTC currently trades for $18,300 as per OKCoin data, stuck in a trading range roughly between $18,000 and $19,500. 

This consolidation has allowed certain altcoins to rally. For instance, Compound’s COMP has risen considerably in the past week. But large-cap assets like bitcoin and ethereum have been relatively neutral to negative.

Analysts are confident that the overall bitcoin trajectory is one of growth. Case in point: institutional investors this past week continued to pledge their support for the leading cryptocurrency — and seems like Ray Dalio is on board as well. 

It’s been a crazy week for bitcoin — what do you think comes next? Tell us on Twitter.

TL;DR

  • Bitcoin’s price action has been relatively muted over the past week as it consolidates between $18,000 and $19,500.
  • BTC currently trades for $18,300, down 3.5% in the past 24 hours.
  • Some have begun to fear a slight correction or continued consolidation due to on-chain and technical trends.
  • Wall Street involvement is expected to drive bitcoin higher in the long run.
  • Ray Dalio now thinks bitcoin is a viable alternative to gold.
  • The Comptroller of the Currency is reassuring Bitcoin users that he or other U.S. regulators have no plans on banning the top cryptocurrency. 

Here’s your market snapshot:

All prices are in USD and time zones are PT. Prices are as of 12:00pm PT.

Why analysts are cautious about bitcoin in the near term

There are some concerned that bitcoin could soon face a correction, in spite of the inflows of capital that are entering the space. 

Raoul Pal, CEO of Real Vision and a Wall Street veteran, thinks that technical signs are currently warning of a bitcoin price retracement. Pal previously headed Goldman Sachs’ hedge fund sales division in Europe. He also recently announced that he has 98% of his liquid net worth in bitcoin and ethereum.

As to why he thinks a correction is due, Pal cited the Tom DeMark Sequential. The sequential is a time-based indicator created by Tom DeMark that measures moves in terms of time to determine inflection points. The investor wrote on bitcoin’s current outlook as per the indicator: 

“Bitcoin is potentially facing some serious technical headways… the daily DeMark is showing a cluster on 2 13’s and a 9 and tomorrow might put in ANOTHER 13! This all puts the odds of a larger correction in play, not a certainty, but top patterns across 3 time series are something to take seriously and if you are not a long-term HODLer, you might consider some caution is merited.”

Analysts are divided over whether or not this signal should be given any credence. However, Tom DeMark himself once took to Bloomberg, noting how his indicator predicted key inflection points in previous points in bitcoin’s history. These include the 2017 cycle high and the 2018 $3,200 macro lows. 

Analysts also see on-chain reasons to be concerned about the price action. 

Ki Young Ju, the CEO of CryptoQuant, noted that the percentage of deposits into bitcoin exchanges from whale addresses has increased. The so-called “Whale Ratio,” which tracks this trend, has passed into a historically bearish zone. Ki believes this may be a precursor to a correction or at least further consolidation:

“Whale Ratio on $BTC spot exchanges indicates the short-term bearish trend started. Historically, if this indicator goes above 95%, meaning 95% of deposits are from the top 10 deposits, the market is likely to be bearish or going sideways.”

This indicator was last above the current levels in February of 2020, prior to the drop to $3,500, and in the 2019 bear market after the $14,000 peak. 

Willy Woo, another household name in on-chain analysis, is also signaling that investors should be cautious. He wrote on December 6th: 

“Bitcoin on-chain structure saying to bulls ‘thou shall not pass’, not without a reset. A reset means many weeks of sideways or a decent bearish dip. Will we get a dip? There’s no impulse of coin movements that’s strongly bearish just yet. Waiting game.”

MicroStrategy still embracing bitcoin, even at sacrifice of stock price

Casting aside any expectations of a short-term drop, MicroStrategy this past week doubled down on Bitcoin in a massive way. 

Firstly, on Friday afternoon, the company’s chief executive, Michael Saylor, revealed that his firm had purchased another $50 million worth of bitcoin. The firm bought 2,574 coins, for an average price of $19,427.

This adds to ~38,000 coins it already holds. The company made headlines in August when it deployed $250 million into bitcoin, then followed this up with a $175 million investment in September.

But on Monday, MicroStrategy shocked the crypto-asset space even further when it announced a debt offering to fund more bitcoin investment. The company intends on selling up to $400 million worth of convertible senior notes. The proceeds of the sale will be used to purchase bitcoin: 

“MicroStrategy intends to invest the net proceeds from the sale of the notes in bitcoin in accordance with its Treasury Reserve Policy pending the identification of working capital needs and other general corporate purposes.”

A convertible senior note is a debt security that requires the issuer to pay interest payments. Convertible senior notes are often transferable for cash or company stock at a later date.

In planning on raising this capital to buy bitcoin, MicroStrategy is saying that it thinks that the price of BTC will outperform the interest they will have to pay on this debt position.

While many think that this is bullish for bitcoin, there are some concerned that this debt offering will draw the ire of regulators. 

This move comes shortly after Citron Research, a prominent stock commentary site known for its short-selling research, wrote that it is long MicroStrategy because it believes MSTR is the best way to play BTC right now: 

“The Citron Fund has a position in MSTR, which we believe is the best way to own Bitcoin. While we believe BTC is going higher, we cannot provide any deeper analysis than what has been overanalyzed by all.”

Paul Tudor Jones says BTC’s market cap is truly undervalued

Billionaire investor Paul Tudor Jones recently told Yahoo Finance that he thinks Bitcoin will move north from here:

“In a world where you’ve got $90 trillion worth of equity market cap and God knows how many trillions of fiat currency, etcetera…[bitcoin has] the wrong market cap, for instance, relative to gold, which is $8 or $9 trillion.” 

Tudor Jones is up approximately 100% on his bitcoin investment, having purchased the cryptocurrency’s futures contract via the Chicago Mercantile Exchange (CME) in April or May, prior to the halving. 

Dalio says bitcoin is viable gold alternative

Ray Dalio, the co-CIO of the world’s largest hedge fund, finally admitted that bitcoin is a viable alternative to gold: 

“I think that bitcoin (and some other digital currencies) have over the last ten years established themselves as interesting gold-like asset alternatives, with similarities and differences to gold and other limited-supply, mobile (unlike real estate) storeholds of wealth.”

He previously stated in television interviews that bitcoin lacks the ability to act as a store of value. 

Threat of crypto regulation grows 

Bitcoin’s rally back into the spotlight has meant that it has once again garnered the attention of global financial regulators.

Maxine Waters, a U.S. representative, recently recommended that Joe Biden retract an expected move to allow U.S. banks to hold funds for stablecoins. Waters also wrote that the move to allow federally chartered banks to hold crypto assets as a qualified custodian should also be rescinded. 

This comes shortly after a number of U.S. representatives introduced a bill suggesting that stablecoins should be regulated under banking law. 

Comptroller of the Currency reassures Bitcoin users

While he could not comment on any specific rumors of bitcoin or crypto-asset regulation, the Comptroller of the Currency, Brian Brooks, reassured users that there is no impending threat to retail investors. 

The Office of the Comptroller of the Currency is a branch of the U.S. Treasury responsible for regulating all banks operating in the U.S. 

He told CNBC late last week that the OCC and other parts of the government are “focused on not killing this,” though still wants to put an emphasis on cracking down in crime:

“We’re very focused on getting this right. We’re very focused on not killing this,” Brooks said. “And it’s equally important that we develop the networks behind bitcoin and other cryptos as it is that we prevent money laundering and terrorism financing.”

Wells Fargo still thinks bitcoin is mostly speculative

Wells Fargo recently labeled bitcoin a speculative investment, likening cryptocurrencies to investing in gold during the gold rush in the 1800s:

“The chart highlights that bitcoin has indeed outperformed gold and the S&P 500 Index over the last three years, but look at the volatile journey bitcoin investors had to endure to get there. Up until only two months ago, three-year total returns were pretty much the same among the three assets, but volatility differed. Cryptocurrency investing today is a bit like living in the early days of the 1850’s gold rush, which involved more speculating than investing.” 

This isn’t exactly worrying, though. Paul Tudor Jones, who has invested a material portion of his portfolio in bitcoin calls it a “great speculation.” That’s not to say that it’s a poor investment, it’s just that there are no cash flows that it can be valued off of like equities are. 

Not to mention, Wells Fargo noted that “fads don’t last 12 years,” referencing how there are signs that bitcoin and cryptocurrencies as a whole have some macro staying power. 

Square still supporting bitcoin growth with latest green energy effort

Financial technology giant Square has continued to pledge its support for the bitcoin space.

The company announced on Tuesday morning its intent to be a carbon neutral company by 2030. As a part of this, it has contributed $10 million to support companies that are using clean or renewable energy to mine bitcoin:

“Square also announced the launch of its Bitcoin Clean Energy Investment Initiative… The new Bitcoin Clean Energy Investment Initiative will support companies working on green energy technologies within bitcoin mining, and aims to accelerate its transition to clean power rather than only removing the carbon for the bitcoin that Square processes.” 

The press release outlining this move says that Bitcoin is a “unique part of Square’s footprint, as the company purchases the cryptocurrency on behalf of Cash App customers.” 

Jack Dorsey, CEO of Twitter and Square, says that he hopes Bitcoin will eventually be powered by only clean power, “eliminating its carbon footprint and driving adoption of renewables globally.”

Many see this move as important as one of the biggest criticisms leveled at Bitcoin is that the cost of each transaction on the environment far exceeds traditional payment rails. 

On-chain trends

According to IntoTheBlock, bitcoin is currently “mostly bearish” as per their seven core metrics, which are based on on-chain trends and market data such as order books. 

Four out of seven of the core metrics are currently in “bearish” territory, while the three others are currently “neutral.” The bearish metrics are net network growth, in the money, large transactions, and futures markets momentum.

The bearish signals seen by IntoTheBlock are reflective of the other worrying on-chain signs mentioned before. 

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