MicroStrategy Surges to 6-Month High as Bitcoin Wrestles With Key Moving Average

sudden, unexplained price swings occurred around midday, causing the S&P 500 and Nasdaq to drop more than 1%, and the Volatility Index (VIX) to jump by 19%, reaching its highest level in a month.

Major stock markets ended the day near their lowest points, while bitcoin rebounded slightly and is currently valued at about $63,300, a 0.7% increase in the last 24 hours but a nearly 2% decrease from its peak of $64,400. Over the same period, the CoinDesk 20 Index, which covers a wide range of cryptocurrencies, grew by 0.3%.

In simpler terms, compared to Ether which experienced slight setbacks, the tokens for Near Protocol, Uniswap, and Aptos performed better, each rising by approximately 5% to 8%.

The steep drop in prices affected both bullish and bearish investors equally, leading to the closure of over $210 million in leveraged derivative trading positions for all digital assets, as indicated by CoinGlass data. Approximately $110 million of these liquidations were long positions that predicted rising prices, while another $105 million was from short positions expecting a price decline.

The swift recovery of cryptocurrencies compared to the stock market might be attributed to the approval of FTX’s bankruptcy plan by a U.S. judge, paving the way for creditors of the failed crypto exchange to be repaid.

Despite briefly surpassing it on Monday, Bitcoin didn’t sustain its position above the 200-day moving average, which is currently at approximately $63,575 according to TradingView figures. Sustained movement and holding above this significant level would strengthen the notion that Bitcoin’s upward trend, which began around the lows of $52,000 in early September, remains intact.

In contrast to the general market downturn, MicroStrategy (MSTR) bucked the trend with its shares reaching $190 for the first time since March and ending the day 5.5% up. This company is the largest publicly-traded corporation owning bitcoin, holding approximately $16 billion worth of this digital asset.

In simpler terms, Markus Thielen, the founder of 10x Research, pointed out in a report before the market opened on Monday that if the stock price surpassed $180, it could gain even more momentum. However, his analysis using regression showed that the stock was currently 44% overpriced compared to Bitcoin.

According to Thielen, market makers might need to protect themselves against potential losses from high volatility (short gamma exposure) due to previously selling call options to individual investors. Additionally, hedge funds that have shorted MicroStrategy shares worth approximately $4.6 billion could feel compelled to buy back these shares if the price rises above $180.

According to Thielen’s report, the rally might encourage MicroStrategy to borrow additional funds to buy more bitcoin, since there has been significant demand for their bonds, often resulting in increases in the bond issuance.

In simpler terms, he suggested that taking on additional loans to buy bitcoin makes sense because of a potential surge in MicroStrategy’s stock. This surge, or “the tail wagging the dog,” could cause a chain reaction where the rise in MicroStrategy’s shares positively influences the price of bitcoin, creating a self-reinforcing cycle.