BTC in meltdown

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Micro’s BTC Hit

It is a bet gone wrong. And now it is staring at massive losses. Business intelligence firm MicroStrategy has lost ~$1 billion because of Bitcoin’s price crash. The stock fell ~25% and things are looking grim. The company will need capital to stay solvent if Bitcoin drops below $21,000.  

The BTC ConnectionThe crypto market is at an 18-month low. Bitcoin is trading at ~$22,370 levels. There is no respite for Bitcoin in sight. MicroStrategy finds itself tangled in this downturn because: 

• It went on a Bitcoin buying spree beginning in 2020, using it as an inflation hedge. 

• It went on a BTC spree in April again, spending $190.5 million. 

• But all these buy-outs happened when BTC was averaging $30,000. The crash changed it all.

• The firm had put in $4 billion to buy these BTCs. Now, crashing prices have reduced their value to just $3 billion. 

Do you know the worst part? MicroStrategy had borrowed $205 million from Silvergate Bank in March to buy more Bitcoins. It’s now stuck with loans. The market is not impressed. 

Margin callThat’s the biggest risk in sight for the company. If Bitcoin slips below $21,000, MicroStrategy will have to kick in a Plan B called ‘margin call’. 

Under margin call, the company will have to stake more Bitcoins or sell its holdings to cover losses. Bitcoin briefly slipped below $21,000 on Tuesday. Plus, Celsius’ freeze decision has caused fresh panic. 

Hikes and cuts The bear market is eating away at jobs already. Coinbase has confirmed plans of laying off 1,100 people. Crypto.com and BlockFi have also asked 400 people to leave. 

Things could get worse with reports that the US Fed is likely to hike interest rates this week. A rate hike increases borrowing costs for people. Higher loan costs automatically reduce spending. Spending cuts lead to a decline in investing. So, is the crypto enthusiasm waning? Morgan Stanley thinks so. 

Ripple’s Big Angst 

Ripple isn’t done with the SEC yet. A decision on the lawsuit between the securities regulators and the crypto exchange is expected this week. But before it all kicks off, Ripple’s legal counsel is laying the groundwork by calling the SEC a ‘bully’. 

No holds barred The crypto exchange claims all it wants is the freedom to innovate. Ripple’s general counsel Stuart Alderoty said that their legal battle actually is the SEC's assault on all crypto in the United States. 

Ripple is relying on former SEC official William Hinman’s words. Hinman had earlier said that XRP is not a security because it is highly decentralised. The SEC called it Hinman’s personal views.

ICYMIRipple and SEC are fighting a court battle over the exchange’s XRP token. The regulator wants to regulate it by deeming it a security. Ripple doesn’t want it. XRP, however, does not pass the Howey Test, a conclusive determinant of what is a security.

Tesla’s Split Verdict

Elon Musk's worries are far from over. His Twitter deal is uncertain, Tesla stock is sliding, and now there are job cuts. Amidst this, Musk is trying a Tesla stock split to boost share prices. 

A recharge momentWhat Musk’s attempting is the oldest trick in the book. In 2020, when the EV maker announced a 5-1 stock split, its shares gained almost 80%. The market was impressed because Tesla shares conceptually became affordable. 

But Tesla’s stock has been sliding for a while. In fact, it has tumbled ~39% since January. So, Musk is going for the tried and tested. 

Bracing for impactBut the market has been indicating that this may not work. Amazon, which did a 20-1 split just a week back, is yet to see any gains.

SEA’s Crypto Boom

Population surge and rising incomes. That’s why Southeast Asia is getting popular as a crypto startup hub. Close to 600 crypto companies have found their home in SouthEast Asia. 

The pull factorSE Asia has young people willing to try new technologies. That’s what has attracted crypto firms to the region. It’s also a developing economy, which means:

1. Internet usage: There’ll be ~370 million internet users in SEA in 2022. That means better access to the internet and more crypto investors.  

2. Informal banking: About 70% of adults in SEA are unbanked. Enter DeFi that gives quicker capital without complicated documents. 

Play-to-earn games such as Axie Infinity are wildly popular because it is an opportunity to earn real income. Amidst regulatory uncertainty on crypto elsewhere, markets such as Singapore with clear regulations are the big gainers. 

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