Bitcoin has seen its price fall rapidly in the last month. This is bad news for treasury companies, particularly Strategy, who now have an mNav deficit.
As of November 27th, Bitcoin has fallen 30% in a month. It started at $114,960 on the 1st, then slowly decreased as the month went on. The 22nd of November saw it hit a monthly low, scraping $84,209. Many have seen this as the tailing off period of a price wave resulting from the 2024 Bitcoin halving event. November has historically been one of the strongest months for cryptocurrency, but combined with lower confidence in tech stocks, this year it has bucked the trend.
What is an mNav Rating?
While not great for Strategy, it can be useful for speculative trading. This includes those who invest based on price fluctuations and futures trading. There are several platforms that now allow traders to do this, and in volatile times, it is a method many turn to. Buying Bitcoin at Kraken is one method, as they allow you to conduct standard purchases of crypto or engage in futures trading.
The fall in Bitcoin’s price has placed the value of Strategy lower than the value of its actual Bitcoin holdings. This metric is measured using its mNav rating, which dropped to 0.879 this week. mNav is similar to the net asset value used in other forms of trading, but applies to companies that hold crypto as an asset. It is a measure of how much equity investors own for every $1 of crypto. In the case of Strategy, investors are spending .80 for $1 of cryptocurrency.
Strategy has reassured investors and has claimed its balance sheet remains strong even if Bitcoin continues its downturn. In a post on social media channel X, they claimed that even if Bitcoin fell to a value of $74,000, its convertible debt would still be covered 5.9 times in their holdings. If it should fall further to $25,000, this would still be double.
Company founder, Michael Saylor, also reassured the public on social media. He cited rising levels of Bitcoin-backed credit as a strong indicator. However, the drop in shares raises one question and a major issue for Strategy. Why not just buy the cryptocurrency directly?
All of this did coincide with another instance of the firm being excluded from the S&P 500 Index. Other statistics have not been kind to the company. On November 26th, it was widely reported that 51% of the company’s Bitcoin haul had been purchased at prices that were higher than the day’s Bitcoin average. It holds 649,870 BTC, with its average buying price sitting at $74,430. With Bitcoin’s recent drop showing a lack of confidence, even at its price of $91,461, it does not bode well.
Crypto Futures Volumes Hit New Highs
Despite all this, crypto futures trading has reached new highs. Futures are a predetermined contract that states people will buy or sell an asset at a given date for a set price. They are used for hedging risk or speculating on price movements, which makes them one of the few trades that can be beneficial if a price declines.
For example, a trader may buy oil on a futures contract. This would be at a pre-determined date, for the stated price. If the oil price rises much higher, then they have done well as they technically get it at a lower value than they agreed. These contracts can then be sold.
Crypto futures work in the same manner, speculating on the price of the digital currency. They were launched in 2017, and there are now quite a few by well-known providers such as Kraken. When buying Bitcoin at Kraken, the process is as easy as signing up, choosing a payment method, buying crypto, and then arranging the contract. With helpful guides and instructions, you just need to check the markets and price predictions to see where you think Bitcoin is headed.
Is a Bitcoin Rebound Coming?
What Strategy needs to turn its fortunes around, along with other Bitcoin treasury companies, is a rebound in the price of Bitcoin. Demand has begun to show some signs of increase. Wallets that hold more than 100 BTC have increased since November 11th. This shows a small accumulation by whales.
At the time of writing, Wednesday 27th has seen a 5.4% rise in the price of Bitcoin, showing some positive outcomes. It outperformed 18 of the 20 biggest tokens by market cap. Added to this was that its 30-day implied volatility index also dropped to 50%. Even Ether has had a rally, rising to $3,030.
Other views have been less than positive. Analysts at CCN have noted that Bitcoin seems to be in a correction phase. While still unfolding, this could push it as low as $71,000 and see it stabilise at $73,000 by the end of next year.
FAQ
Why Is Bitcoin Dropping Now?
There are several reasons Bitcoin is currently dropping in price. Mainly, this is trepidation from Wall Street regarding tech stocks and a possible burst in the AI bubble. However, other macroeconomic conditions can be attributed to it.
Will Bitcoin Go to Zero?
It is highly unlikely that Bitcoin will ever return to a value of zero. This would require a total collapse in investor faith and the digital ecosystem. While it is a possibility that it may drop much lower than expected, zero is unfathomable to most experts on the matter.