-
JPMorgan said MicroStrategy's use of leverage to build Bitcoin assets could make the economic downturn even more severe.
-
Founder Michael Saylor said MicroStrategy wants to acquire as many Bitcoins as possible.
-
Mike Novogratz has warned that too much leverage fueling Bitcoin's rally could cause a pullback.
Bitcoin is hitting new all-time highs, but one bullish company's huge exposure could make a future correction even worse, JPMorgan said in a note.
Analysts led by Nikolaos Panigirtzoglou said Thursday that MicroStrategy's debt-financed Bitcoin purchases add leverage and froth to the current crypto rally, making it more leveraged in a potential downturn in the future. We believe that this increases the risk of dissolution.”
Growing enthusiasm for the token sent the token soaring above $73,000 this week as the newly launched Spot Bitcoin ETF opened its doors to new investors. Other investors are flocking in ahead of next month's Bitcoin halving, an event that historically pushes prices to new highs.
However, according to JPMorgan, MicroStrategy essentially morphed into a leveraged bet on Bitcoin and played a significant role in this rally.
The company, founded by crypto tycoon Michael Saylor, had acquired a total of 205,000 Bitcoins as of mid-March, and its stash is now worth more than $14 billion. Building this treasure trove has become a focal strategy for the company, as Saylor frequently touts his plans to acquire as much Bitcoin as possible.
“This is the best investment asset, so the end goal is to earn more Bitcoin,” he recently told Yahoo Finance. “Whoever wins the most Bitcoins wins. There is no other final phase.”
JPMorgan said MicroStrategy bought $1 billion in Bitcoin this year and another $1 billion in the fourth quarter. To fund these acquisitions, Saylor previously explained that the company leveraged its Bitcoin investments.
“We use cheap capital, our average cost of capital is at or near 1.6%, but we use a combination of leverage to deliver yield to our shareholders,” he said in August.
JPMorgan analysts wrote that the company is now aiming to offer an additional $500 million in convertible debt to continue its Bitcoin buying spree.
The overleverage in Bitcoin's rally has also raised concerns among other commentators. Galaxy CEO and crypto enthusiast Mike Novogratz generally expects the token to rise further, but not before a correction to around $50,000.
That's because new ETFs attract large numbers of retail investors who rely on leverage, which is not sustainable.
“I think the market is overleveraged right now, and that's what happens after a big rally,” he told Bloomberg TV late last month. “There's going to be an exodus. People can't maintain this much influence.”
Read the original article on Business Insider
