MicroStrategy issues $700M in Convertible Notes to Buy More Bitcoin

Profiled as the de facto Bitcoin institution, MicroStrategy (MSTR) continued its accumulation path this week by issuing 700 million US dollars worth of convertible notes to buy more bitcoin. The company's balance sheet currently holds a total of 214,440 units.

Source: 21metrics

MicroStrategy employs a dollar-cost averaging (DCA) strategy in its purchases, but cyclically weights its buying program. When spot prices sharply declined back in 2022, the company's purchases were modest at 8109 bitcoins, while in 2023, acquisitions rose to 56,650 units. On an annual basis, the growth of MSTR's buying program from 2022 to 2023 was an impressive 599 percent.

In 2024 so far, the company has purchased a total of 25,250 bitcoins, and is on track to reach the accumulation levels of 2023. The issuance of convertible notes shows MicroStrategy's counter-cyclical mindset despite the recent spot price weakness.

Source: Evan Kuo

Previously, Preston Pysh has viewed MicroStrategy's buying program as a speculative attack against the US dollar. The company's loan arrangements ultimately rely on unlimited fiat currency, which is borrowed for the purchase program of a limited supply asset class (i.e., bitcoin). Scaled up, this model implies the weakening of the dollar as bitcoin continuously strengthens.

Pysh has likened the buying program to George Soros's famous attack against the Bank of England (BoE), where he shorted the pound (GBP) by nearly a billion units. The BoE central bank was believed to be close to collapse at that time.

A Funding Reset

The crypto market is going through a derivative market funding reset, in which $152.76 million worth of long and $75.81M worth of short bitcoin positions were liquidated between Wednesday (13.6) and Thursday (14.6). As expected, the spot market has negatively reacted to the reset, leading to bitcoin declining -5 percent on a weekly basis.

The combined sum of these liquidations rises to $228.57 million. The futures market has a tendency to overheat and funding reset is the main mechanism to flush out excessive derivative positions.

However, bitcoin's estimated leverage ratio (ELR) is at 0.19, representing the highest level this year. The high ELR indicates investors still willing to take more risk, leaving room for further deleveraging.

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Estimated Leverage Ratio = Open Interest ÷ Amount of Reserve

High ELR: Investors Increase Risk

Low ELR: Investors Decrease Risk (or Derisk)

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Sources: Timo Oinonen, CryptoQuant

From a purely technical perspective, our market outlook remains unchanged. Earlier in the spring, we forecasted bitcoin forming a double top structure in 2024. In this scenario, the market would calm down during the summer, but we’d see elevated price levels by Q3 and Q4.

Sources: Timo Oinonen, CryptoQuant

Bitcoin's realized price has reached its highest point ever, rising to $30,468.26. The realized price is important because it represents the average price of all bitcoin purchases. At the same time, the realized price illustrates that bitcoin buyers are making a profit on their investments, on average.

Source: Material Indicators

Cumulative volume delta (CVD) shows the retail segment still remaining relatively inactive, while some whale level buyers are in accumulation mode. Large $100K - $1M category orders have been in an elevated role during the past weeks.

In a bigger picture, cryptocurrencies still offer unparalleled inflation hedge properties, despite the recent correction and funding reset. Andreas Steno Larsen of Steno Research said he would prefer cryptocurrencies over metals for inflation protection.

"I'm not necessarily sure that metals is the place to be for that inflation protection right now, given the extreme cluster of risks because of the China story. So I would not buy metals, I'd buy crypto..." - Andreas Steno Larsen

A September Rate Cut Incoming?

Investors have been anticipating a central bank policy shift for years now, and finally there seems to be some light at the end of the tunnel. According to CME, there's a 61.1 percent chance for a 25 basis point rate drop in FOMC of September 18th.

Fed and its interest rate cut schedule plays a big role in crypto price discovery, as the "cheap dollar" firstly benefits risk-on assets. During previous cycles, the low (or negative) interest rates have greatly elevated bitcoin and its higher beta low-cap token fellows.

Source: CME

From a long-term vantage point, the crypto market seems to follow Raoul Pal’s Exponential Age thesis, according to which technological development will accelerate the markets and change our perception of money. According to Pal’s latest analysis, global liquidity (M2) is at an inflection point and will recover towards the year of 2025.

Historically the growing liquidity has been bullish for high beta assets like cryptocurrencies, as the "cheap dollar" flows into risk-on assets, uplifting valuations.

Source: GMI

Pal states that technological advancement is continuously accelerating. Furthermore, he argues that there are several technological disruptions on the horizon, such as artificial intelligence, blockchain, cryptocurrencies, and biotechnology, all of which are progressing exponentially. This means that the applications of these technologies and their impacts are growing faster than linearly.

These technological changes have profound ripple effects on the economy and society. They can create new opportunities but can also cause significant disruptions to traditional industries and job markets. For investors, the exponential age means that traditional investment strategies may become outdated, and they must consider the rapidly changing technological landscape.

TON Popular in US, Not in EU

Toncoin (TON), the native token of Telegram, has been one of the favourite tokens this in 2024, rising 246 percent year-to-date. Within the past twelve months, TON has surged a whopping 472%.

CryptoQuant's data shows the token being highly preferred by US-based traders, while Europeans largely remain cautious. For a trader, this indicates the US trading hours being more lucrative than European and Asian ones.

Source: CryptoQuant

The scepticism of European investors might stem from geopolitics and the current conflict in Eastern Europe. Telegram was originally founded by Pavel Durov, the founder of the Russian social network VKontakte.

Toncoin was originally developed as part of Telegram's project to create its own cryptocurrency called "Gram", which was halted by the US Securities and Exchange Commission (SEC). After the incident, the Telegram team shifted its focus to developing Toncoin as an independent blockchain project.