Bitcoin (quotation BTC) continued its long run in June 2022. The largest cryptocurrency fell 36,7%, according to data from S&P Global Market Intelligence, dragging many related stocks with it. For example, software company and Bitcoin investor MicroStrategy lost 37,9%, while Bitcoin investment fund Grayscale Bitcoin Trust fell 41,3% and Bitcoin mining Riot Blockchain 41,7%.
The cryptocurrency market has faced the same risk-averse investor behavior in recent months, fueled by negative inflation reports and global economic uncertainty. Additionally, lawmakers took some steps towards regulating cryptocurrencies in June, but the bureaucratic wheels are slowly spinning and no one knows what the long-term legal framework will look like.
Prices still falling?
If Bitcoin prices continue to fall further, we will likely see a consolidation of the cryptocurrency sector. Companies with weak balance sheets and shaky business plans may be forced to close their doors, file for bankruptcy and sell their businesses to stronger rivals. For example, cryptocurrency-focused hedge fund Three Arrows Capital filed for bankruptcy and liquidation, while cryptocurrency lending specialist Celsius Network froze operations, withdrawals and balance transfers due to the "extreme conditions of the market".
The aforementioned cryptocurrency stocks, however, are not in immediate risk of failure.
Riot Blockchain is selling some of its Bitcoins to pay the bills, but it has generated more tokens than it sold in June. The company is also actively investing in its Bitcoin mining infrastructure, adding more mining facilities and improving the performance of older equipment through the use of immersion cooling systems.
Grayscale is struggling to convert its Bitcoin trust fund into an exchange traded fund (ETF) directly tied to the latest Bitcoin spot prices. Investors are reluctant to use a fund that only settles transactions at the end of each trading day. With the ETF's intraday stock price, investors can react much faster to changes in this volatile market, so the Bitcoin fund comes with a risk-based discount. In its current form, the Grayscale Bitcoin Trust is valued at 0,000922 Bitcoin per share, which equates to $ 18 at current cryptocurrency prices. Share prices fell 32% to $ 12,25. The fund managers are currently suing the Securities and Exchange Commission (SEC) to overrule the agency's recent decision to deny the fund-to-ETF transformation request.
MicroStrategy continues to buy
MicroStrategy continues to buy Bitcoin, claiming that digital currency is a great investment at these low prices. Over the past two months, the company has increased its Bitcoin holdings by 0,4% and now holds around 129.700 tokens. The business intelligence firm also holds some loans that rely on the holdings of Bitcoin as collateral, raising concerns about the financial impact of the Bitcoin price collapse. However, Chief Executive Michael Saylor says the loans won't face any margin calls until Bitcoin prices drop below $ 3.562 per token, and even then MicroStrategy could add other types of collateral. With Bitcoin prices hovering around $ 20.000 these days, MicroStrategy appears to have solid financial ground at the moment.
What could happen
Bitcoin prices fell 59% in 2022, and all three of the aforementioned crypto-revolutionary stocks are undergoing even deeper cuts. Investors in this sector are nervous, and probably for good reason. The cryptocurrency market is filled with uncertainty, and many investors don't have a thorough understanding of what blockchain ledgers can do or their value.
That said, this is not the first massive crash in cryptocurrency history and it won't be the last. Cryptocurrencies evolve and adapt to ever-changing market conditions. As a result, all the investments mentioned above are incredibly risky and you have to prepare for rough roads.
Some of these stocks can be a good bet on the cryptocurrency market, and their current prices are certainly more attractive than last fall's much higher peaks. However, it would be wise to keep your cryptocurrency investments relatively small, as the speculative sector separates the chaff from the wheat during this difficult time. Even the reasonable quality stocks discussed here are not immune to market risks. You have to weigh the promise of a surge in stock prices with the very real risk of going to zero in the event of bankruptcy or liquidation.
As for Bitcoin itself, I believe this established powerhouse is set to lead in the long run, but even then there are no guarantees that prices will rise again. Be careful, dear reader.