Bitcoin is heading lower today by more than 1%, failing to hold above the $ 60,000 psychological threshold.
The continued downward pressure on bitcoin came amid ongoing capital flight from the market, a renewed setback from Michael Sylor’s Strategy, and broader geopolitical instability that keeps major government bond yields elevated.
Starting with Strategy. There was both good and bad news from the bitcoin hoarding company.
The good news is that Sylor appears to be scaling back his company by announcing a buyback of common and preferred shares. This is good, as it is meant to slow dilution for common shareholders.
We saw MSTR rise and the flagship preferred share, STRC, move closer to its par value of 100, closing above $83 yesterday, with both shares rising by more than 12%. The bad news is that the company will sell up to $1.25 billion in bitcoin to finance the share buyback program and dividend payouts, per the company, and will also use its cash reserve, which stood at $2.55 billion as of June 28.
If STRC managed to regain the $100 par value, that might enable Sylor to issue more shares – along with MSTR indeed – to avoid further and larger bitcoin sales. In other words, the company is avoiding a total collapse by scaling back and lowering its bitcoin stash, at least for now. But if STRC fell further, Sylor’s financing channels would narrow to only 2 options: dumping more MSTR on retail or selling more BTC, maybe at a faster pace and dragging the market lower.
On the geopolitical side, the situation remains highly volatile, especially after the recent skirmishes between the United States and Iran affecting the flow of ship traffic and with it global crude supplies flowing from the Strait of Hormuz. Meanwhile, we are still waiting for the outcome of today’s anticipated resumption of talks, which could lead to a resumption of negotiations on the memorandum of understanding, originally intended to establish broader calm in the region. Without this desired stability, upward pressure on crude oil prices may remain, which could keep them high for a long time or slow down their decline.
This matter does not stop here but also extends to bond markets around the world and across all markets, especially cryptocurrencies. The upward outlook for inflation and the absence of a clear path toward a comprehensive settlement of the conflict, with a return to escalation still possible, make monetary policymakers, especially at the Federal Reserve and the Bank of Japan, more cautious and more inclined to raise interest rates. This could keep bond yields high, which in turn raises the cost of funding speculative positions that cryptocurrency traders need to rebuild their long positions. In this regard, we are likely to see at least a quarter-point interest rate hike by the Federal Reserve before the end of this year, according to CME Group’s FedWatch Tool.
These combined factors keep money flowing out of cryptocurrencies and into other markets, and spot Bitcoin exchange-traded funds reflect this narrative. We witnessed more than $230 million leaving spot Bitcoin ETFs yesterday, following seven consecutive weeks of outflows totaling nearly $8 billion, according to data from SoSo Value. Furthermore, we saw a contraction in the number of Bitcoin whales on the blockchain, as we lost 22 whales holding between 1,000 and 10,000 Bitcoin over a one-month period, according to figures from BGeometrics.