Key Points
- Bitcoin’s ongoing decline has led to a drop in premarket shares of crypto-related companies.
- A significant Bitcoin transfer by Mt. Gox has resulted in one of the largest liquidations of the year.
Shares in companies associated with cryptocurrency took a hit in Friday’s premarket as a result of Bitcoin’s continued slide. The digital currency briefly fell beneath $54,000, its lowest point since February, and is now trading around $54,980.
The broad declines are a reflection of the increased volatility in the cryptocurrency markets. This is affecting companies across the sector as investors respond to Bitcoin’s recent downturn.
Effects of Bitcoin’s Downturn on the Market
The downward trend of Bitcoin resulted in a negative premarket trading day on Friday for many stocks associated with cryptocurrency. MicroStrategy Inc, a software company owned by Michael Saylor that holds over 210,000 BTC, and Bitcoin miner Hut 8 Corp were among the most affected, dropping 8.5% and 9.5% respectively.
Mining companies such as Marathon Digital Holdings Inc, CleanSpark Inc, and Riot Platforms Inc saw declines between 6% and 7.5%. Cryptocurrency exchange Coinbase Global Inc also saw a 6.5% drop.
Traders and investors are currently keeping a close eye on the cryptocurrency market to evaluate its impact on related stocks.
Bitcoin’s Decline and the Market’s Reaction
The decline in Bitcoin followed a substantial transfer of BTC by the once-dominant crypto exchange, Mt. Gox. The exchange moved 47,228 BTC, valued at $2.6 billion, from cold storage to a new wallet, according to blockchain analytics firm Arkham Intelligence. This move is a part of preparations to repay creditors who lost their funds during the 2014 hack.
This massive transfer resulted in over $580 million in liquidations tied to long positions, marking one of the largest liquidations of the year. The broader cryptocurrency market also saw significant declines, with Ethereum and other altcoins dropping nearly 10%.
Corporate Strategies in the Crypto Industry
Publicly traded companies related to cryptocurrency have been aggressively increasing their Bitcoin holdings and market positions. MicroStrategy, the largest corporate Bitcoin holder, has been buying more of the cryptocurrency since August 2020. Originally a software development firm, MicroStrategy’s Bitcoin stash is valued at over $10 billion, representing a significant portion of the firm’s total assets and market value.
Bitcoin miners like Riot have also been doubling down on funding and expanding their infrastructure to capitalize on future growth opportunities in cryptocurrency mining. Riot currently holds more than 9,000 BTC as of June, worth over $500 million. Riot recently proposed an offer to acquire Bitfarms at a 24% premium to Bitfarms’ one-month volume-weighted average share price, indicating their growing interest in Bitcoin.
Critics are voicing concerns about these companies’ strong alignment with cryptocurrencies, citing the volatile market conditions like the ones currently being experienced. Over-exposure to the crypto market can lead to significant losses for investors. Additionally, using borrowed funds to invest in highly volatile assets carries significant risks, including potential share dilution if debt notes are converted into common stock.
Despite the recent downturn, the broader market remains optimistic about the long-term potential of cryptocurrencies, viewing this pullback as a temporary setback in the ongoing evolution of digital assets.
