Companies publicly traded that hold over a million Bitcoin find themselves hovering around the current market price. The impact of this concentration—whether it serves as a cushion for buying or a potential trap—hinges on which side reacts first.
This article may include links from our sponsors and affiliates, for which Flywheel Publishing may receive compensation based on actions taken through said links.
Treasury firms, public corporations with Bitcoin on their financial statements, have an average acquisition cost of approximately $80,000 per coin, as reported by Glassnode.Bitcoin (CRYPTO: BTC) is currently trading at $81,836, reflecting a 1.9% decline in the last 24 hours and 35.1% lower than its record high. Presently, the price hovers just above the amounts these companies initially paid.
As per Glassnode, Bitcoin has remained above the $80,000 mark since September 18, placing these firms back into profitable territory. However, their purchasing activity has been minimal as prices near their average acquisition cost. On October 15, Bitcoin briefly dipped to $79,676 but ultimately closed at $82,131. This situation raises a critical question: Is the $80,000 level a stable support for these buyers, or could a fall below this point trigger a more significant downturn?
Why the $80,000 Cost Basis for Bitcoin Treasury Firms May Provide Support
The cost basis represents the average amount a company has spent per Bitcoin. For those with an $80,000 average, trading above this price yields paper profits, while trading below incurs paper losses. Given that U.S. firms must report Bitcoin at fair market value quarterly, a decline below their cost basis would result in reported losses.
This sector is significant, with publicly traded companies holding around 1.3 million BTC, valued at approximately $106.7 billion. Strategy Inc. (NASDAQ: MSTR) stands as the largest holder, owning over 848,000 BTC after a major acquisition on October 5.
Market participants often see the cost basis of large holders as a price support level, where interest in buying may arise. This perception exists because these companies are motivated to defend their average purchase prices, while outside investors view this as a buying opportunity. Michael Saylor, co-founder of Strategy, shared his confident outlook, stating, “The bull market is calling,” as Bitcoin once hit over $84,500 before retreating.
Strategy Leads the Charge at the $80,000 Average
The $80,000 average is heavily influenced by the large stakes held by Strategy, which skews the cost figure towards their purchasing timeline. Currently, Strategy holds a favorable position, showing a profit based on an entry value of $64.6 billion against a market value of $69.4 billion.
On the other hand, smaller holders are struggling. For example, Japan’s Metaplanet shows an entry value of $3.9 billion, while its current value stands at just $3.6 billion, indicating it is already incurring losses. Similarly, Trump Media & Technology Group (NASDAQ: DJT) has an entry value of $1.13 billion, contrasted with a current value of only $781 million.
Moreover, records from holding trackers show no entry value for some major holders, including MARA Holdings (NASDAQ: MARA), leading to discrepancies in the overall cost basis for the group.
What Might Prompt Bitcoin Treasury Companies to Liquidate Their Holdings
Several factors could compel selling actions. Debt agreements may necessitate that companies maintain collateral above certain thresholds, potentially triggering margin calls if Bitcoin prices decline further. Additionally, corporations are required to cover obligations like preferred stock dividends, which can become challenging during market downturns, and a falling stock price may restrict access to fresh capital, increasing the likelihood that firms sell Bitcoin for liquidity.
Index pressures heighten this risk. MSCI is considering removing Strategy from its indices due to new regulations, and index funds that eliminate a stock must divest it, impacting the stock price necessary for Strategy to secure capital.
ETF Inflows Drive Demand Above $80,000
ETF flows are often indicative of where new capital is directed. On October 21, U.S. spot Bitcoin ETFs attracted $528.4 million, following $526.6 million on October 19, totaling net inflows of $57.96 billion and net assets reaching $109.3 billion.
Nonetheless, these inflows can be unpredictable. For instance, outflows of $487.1 million and $244.1 million occurred on October 7 and 8, respectively, as Bitcoin declined from an $85,540 close on October 6 to a low of $80,315 by October 8.
At present, Bitcoin’s 50-day moving average stands at $81,699, slightly below its current trading price, with a recent weekly high of $84,856. Despite a 31.4% increase over the last 90 days, Bitcoin is down 21.8% for the year.
What If Bitcoin Drops Below $80,000?
Currently, it appears that ETF buyers—not Bitcoin treasury firms—are the primary force sustaining Bitcoin above $80,000, as treasury buyers have not stepped up to defend their average acquisition cost. If Bitcoin manages to stay above $80,000 and its 50-day average of $81,699, the group remains profitable, preserving its fundraising abilities, while potentially retesting $84,856 if ETF inflows persist.
A decline below $80,000 could have adverse effects. It would push the group’s average underwater, lead to reported losses, and heighten the risk of forced selling, especially for smaller holders with obligations related to debt or preferred dividends. A continued trend of daily outflows from ETFs, as seen with the $487.1 million on October 7, or a close beneath the recent low of $79,676, could indicate a breakdown of support.
For any inquiries or corrections, please contact [email protected]