Amid the interest rate hike storm, will institutions still be the support point?

Barclays said on June 13 that U.S. inflation data could be "shockingly" high, meaning they now expect the Fed to raise interest rates by 75 basis points this week, rather than 50 basis points. Investor sentiment was dampened again as investors worried that the Fed might raise interest rates more sharply to curb inflation. Bitcoin continued to fall, falling below $22,000 at one point, hitting its lowest level since December 2020.

The market keeps falling

Asian and European stock markets fell, and U.S. stock futures plunged as markets fretted over soaring inflation and sluggish economic growth. The 2-year and 10-year U.S. Treasury yield curve inverted for the first time since April, a sign many see as a sign that the U.S. could fall into recession in the next year or two.

The market showed that U.S. stocks opened sharply lower, with the Dow Jones Industrial Average opening down about 644 points, the S&P 500 opening down 2.55%, and the Nasdaq down 3%, falling below 11,000 points for the first time since November 2020. Technology giants fell sharply, with Tesla (TSLA.O) falling about 3%. The company is seeking a stock split, intending to split one share into three.

Cryptocurrency and blockchain-related stocks fell in pre-market trading, reflecting the fragility of cryptocurrency prices in a broader risk-averse environment. U.S. blockchain concept stocks fell in early trading, with Coinbase (COIN.O) falling more than 18%, Marathon Patent (MARA.O) falling more than 13%, Riot Blockchain (RIOT.O) falling nearly 10%, and Bit Digital (BTBT.O) falling nearly 8%.

MicroStrategy, which had previously insisted that the company had no need to consider selling Bitcoin, fell 25% at the opening. According to data previously disclosed by Michael Saylor, as of April 4, MicroStrategy acquired 129,218 Bitcoins for approximately US$3.97 billion, with an average price of approximately US$30,700 per Bitcoin. Based on the current price of Bitcoin, its book loss has exceeded US$800 million.

BTC listed mining companies fell across the board at the opening of Monday, with declines reaching double digits. Argo Blockchain fell more than 18% on the London Stock Exchange and more than 16% on the Nasdaq; Core Scientific, Iris Energy and TeraWulf stocks fell 12.87%, 12.66% and 11.32% respectively. Since many of these companies hold most of the Bitcoin they mine, the value of their assets depends largely on the price of Bitcoin.

Edward Moya, senior market analyst at Oanda, said that the sentiment towards cryptocurrencies is very bad as the global cryptocurrency market value has fallen below $1 trillion. He added that if Bitcoin falls below $20,000, it may lead to worse price trends. As monetary policy is tightened in many parts of the world, cryptocurrencies have become a symbol of escape from speculative investments, which has caused liquidity in its global market to dry up.

Institutional analyst Joanna Ossinger pointed out that the situation of cryptocurrencies now looks bad. For tokens that are already struggling to cope with the Fed's interest rate hikes and the sell-off of risky assets, the hot US inflation data is just adding insult to injury. Bitcoin has fallen for seven consecutive days and has broken through the recent decline range. This makes Bitcoin likely to drop to the 200-week moving average, which is around $22,300, or even the 2017 high of $19,511.

Will institutions provide support?

Looking at the development of the last round of market, the role of institutions is not insignificant. Several large companies, including MicroStrategy, Tesla, Square and Coinbase, collectively purchased hundreds of millions of dollars worth of cryptocurrencies. Previously, the idea of ​​listed companies buying Bitcoin as their reserve assets has been considered ridiculous. Bitcoin is considered too volatile and too marginal to be accepted by any serious company. But in the last round of market rise, Bitcoin became the choice of many institutions to add to their balance sheets, which further promoted the development of the crypto market.

According to the Crypto Pulse survey report released by the cryptocurrency exchange Bitstamp, institutional and retail investors believe that cryptocurrencies will surpass many traditional investment tools within a decade. 88% of institutional respondents and 75% of retail investors believe that cryptocurrencies will be accepted by the mainstream in the next 10 years. 68% of institutional investors surveyed said they are actively recommending cryptocurrencies.

According to CoinGecko data, listed companies around the world currently hold more than 225,000 bitcoins, of which MicroStrategy alone holds more than 129,000 BTC. After the company began adding Bitcoin to its balance sheet in August 2020 to hedge against inflation, the company's stock has been highly correlated with Bitcoin. However, for MicroStrategy, if the price of Bitcoin falls further, the company may need to provide additional collateral for the $205 million loan it obtained in March this year. MicroStrategy said in a conference call in May this year that if the price of Bitcoin falls to about $21,000, they will need to invest more funds beyond the $820 million initially committed. On-chain data shows that MicroStrategy transferred 2,089 bitcoins (about $48 million) to a new wallet, the first time the company has transferred bitcoin. CryptoWhale analysis said the move may mean that MicroStrategy plans to sell its Bitcoin holdings.

Some analysts believe that Bitcoin is just an asset that can be allocated for institutional investors. When the global financial market is not doing well, these funds will sell Bitcoin. Lucas Outumuro, research director of crypto market data science company IntoTheBlock, said that institutional investment has slowed down and this trend is likely to continue.

However, it is worth mentioning that MicroStrategy CEO Michael Saylor has always been a staunch coin holder. Michael Saylor previously stated that once you understand the fundamentals of the leading cryptocurrency and how difficult it is to create something better, Bitcoin's recent volatility is largely irrelevant. In a very uncertain world, Bitcoin is the most certain thing, more certain than any other 19,000 cryptocurrencies, more certain than any stock, and more certain than owning property anywhere in the world. In addition, Michael Saylor also stated that MicroStrategy has not sold any Bitcoin and will buy more Bitcoin as long as there is idle funds. MicroStrategy plans to always buy Bitcoin at the "top" price.

In the face of the decline, Bitfinex analysts expressed a different view and pointed out that institutional sentiment is different from retail. Even in the most difficult market conditions, institutional investors such as MicroStrategy and Block insist on investing to hold Bitcoin for the long term.

In addition, according to research released by Accenture in June, digital assets, including cryptocurrencies, stablecoins and crypto funds, accounted for an average of 7% of the portfolios of investors surveyed, making it the fifth largest asset class for Asian investors. Accenture said the survey was conducted among more than 3,200 clients in China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore and Thailand. The company defines wealthy investors as anyone who manages $100,000 to $1 million in investable assets. Although half of investors in Asia already hold digital assets in the first quarter of 2022, Accenture's research shows that by the end of 2022, another 21% of investors are expected to invest in these assets, which means that up to 73% of wealthy investors in Asia could hold digital assets.

Although there are still many wealthy investors and determined institutional investors who choose to hold for the long term. However, the decline in the crypto market and the stock market caused by high interest rate expectations due to high inflation continues. The entire crypto market has not yet "soft landed". Analysts believe that the current macro situation suggests that a major adjustment is coming, which may drag down digital assets. If cryptocurrencies eventually enter the adjustment phase, he believes that more noise will be generated in the entire market.