Experienced traders know that the averaging strategy is dangerous. However, Microstrategy analysts believe that the market decline is an excellent reason to build up positions. How risky is this game?
Averaging is an increase in the volume of a transaction as the price moves in an undesirable direction. If you buy Bitcoin for $ 60 thousand and $ 40 thousand, then the average price will be at the level of $ 50 thousand. Thus, in case of growth above $ 50 thousand, the investor turns out to be in the black, despite the initial position of $ 60 thousand.
Everything looks good with confidence in price growth, but problems begin with continued decline or prolonged consolidation. The classical trading and investment literature recommends exiting positions if the fundamental basis has changed or the risk has exceeded the expected level. But everything is a little easier (isn’t it?) if you operate with someone else’s funds.
MicroStrategy is a publicly traded company that borrows funds through the sale of shares for competent capital management. If successful, shareholders benefit in the form of dividends and rising stock prices. However, the lack of funds for operating activities threatens the bankruptcy of the company, and clients – the loss of investments. The management went on “thin ice” for the sake of a new purchase of Bitcoin, announcing the issue of bonds in the amount of $400 million with a maturity in 2028.
This is not the first purchase of cryptocurrency by a company under additional collateral.
So, in February, it issued $ 1 billion worth of debt securities, buying Bitcoin at an average price of $48 thousand. Now MicroStrategy is one of the largest public holders with a total stock of 92,079 BTC. However, the overall financial situation can be judged by stock quotes:
The value of MicroStrategy shares, $The value of MicroStrategy shares, $
Bitcoin doesn’t need to dive deep to swallow buyers like MicroStrategy. Consolidation in a few years is enough, and the company will not be able to repay the debt.
Institutional players caused the rally of 2020, but they also led to the overheating of the cryptocurrency market, pumping it with a large amount of borrowed funds. Young retail players have already appreciated the strength of the cryptocurrency storm, when in May they boldly opened all positions with a shoulder. Now it’s the turn for the big fish?