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The Wolf Den #522 - Will MicroStrategy Be Liquidated?

June 15 · Issue #522 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. Will MicroStrategy Be Liquidated?
  2. Bitcoin Thoughts And Analysis
  3. Back To 2017 - IntoTheBlock
  4. Legacy Markets
  5. Celsius Brings In The Suits
  6. Will History Repeat?
  7. Did 3 Arrows Get Margin Called? 
  8. My Recommended Platforms And Tools
Will MicroStrategy Be Liquidated?
Here’s a lesson for you.
It is never a good idea to announce your liquidation price to the world. I’m not talking about you and your personal position. I’m talking to the big boys.
MicroStrategy had an earnings call last month where the CFO publicly announced the company’s “oh shit” floor. He followed up by saying that the company was comfortable, because it would require an additional drawdown of 50% from 42K. That couldn’t happen, right?
While hindsight is 20/20, this was still clearly a bad idea to discuss. It only took a month to hit those numbers.
You can make the case that Bitcoin was headed here anyways, but my point still stands. We are seeing the liquidation prices of major companies and platforms targeted repeatedly by whales, so this is not something for the public’s ear.
Jeff Dorman, CFA
CT: "#Tether must show us exactly each asset they own!"

Also CT: "The second you show us on-chain proof of assets like #Celsius & $LUNA did, we're going to target your assets & put you out of business!"

Tough to navigate between full transparency & putting your biz at risk.
As Jeff Dorman wisely points out, this is a major dilemma. I am not brokering in conspiracy theory, but in a nascent market with little enough liquidity that it can be moved, it’s a huge problem for your assets and liquidation prices to be public.
Let’s recap what exactly was said by the MicroStrategy CFO.
As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV, the margin call occurs 50% LTV. So essentially, Bitcoin needs to cut in half or around $21,000 before we’d have a margin call. That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there, so we don’t ever get into a situation of March call also.
So we have more that we could contribute in the case that we have a lot of downward volatility. But again, we’re talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributors. So I think we’re in a pretty comfortable place where we are right now.
The risk of really are that we would have to contribute more bitcoin. As you can see, we mentioned previously, we have quite a bit of uncollateralized bitcoin. So we have 95,643 unencumbered bitcoin.
If you want to read the entire transcript, you can do so HERE.
So now what? 
Well, Bitcoin dropped below $21,000, but the company’s real liquidation price is realistically far lower.
Like, really far.
MicroStrategy revealed in the call that, “over 95,600 Bitcoins remain unpledged and unencumbered.” In theory, all of these Bitcoin could become pledged as collateral to avoid a margin call by bringing down the LTV ratio, (which needs to be below 50%). Most of their Bitcoin is not collateralized, but they definitely do not want to have to pledge their entire stack.
Even though the company has 95,600 Bitcoin to put to use of their 129,218 Bitcoin position, it’s not a cushy feeling of puppies and ice cream cones when you have to start doing it. MicroStrategy is already basically a leveraged Bitcoin position.
Are there additional mechanisms to defend their position? There’s Saylor’s personal stack, which is said to be roughly 17,732 Bitcoin. They could also raise more money or debt, but that sounds less likely at this point. I doubt either of these options come into play.
On the bright side, Saylor seems unfazed.
Michael Saylor⚡️
MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. $MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral. See slides 11-12 in Q1 2022 presentation. #HODL
There is clearly very little to worry about if the true liquidation price is $3,562 and that could also be defended. If we reach that price, we have much bigger problems to consider.
All of that said, you can reasonably expect any CEO to remain strong in the face of adversity. We just witnessed Mashinsky fighting back tooth and nail up until the final moments of collapse. Do Kwan did the same with Luna and now it may be Su Zhu at 3AC. It’s very reasonable to believe that if MicroStrategy does come under serious heat, Saylor would never show it.
But the math makes sense, and MicroStrategy is a publicly traded company.
There’s nothing hiding beneath this hood. The comparisons above are not apples to apples.
If prices do drop lower, I expect this topic of conversation to gain momentum. The Bitcoin community will want and need Michael Saylor and MicroStrategy to succeed, but that does not mean that whales will not do everything in their power to liquidate him.
Michael Saylor is the embodiment of a Bitcoin HODLER. If he dies, a part of each of us dies too.
I think it is clear that I believe in Michael Saylor and do not think that he will capitulate or fail. He is one of my favorite people in the community and in real life.
The outcome of the situation is out of our hands. What we can do is make sure that we are spreading accurate information and avoiding the FUD.
You can always point to the quarterly earnings report linked above when presented with misinformation.
Bitcoin Thoughts And Analysis
I have posted this chart 100 times over the years, but never thought I would be sharing it in this context. As you can see, every time for years that the EQ (center dashed line, equilibrium) was broken, price visited the top or bottom of the channel. This was the case being made for 200K Bitcoin when it broke to the upside in January of 2021.
The top never hit, the EQ was broken as support, and now we are looking at the bottom of the channel as support. I am not saying we will get there, and if we chop sideways for a few months, that ascending line could meet price without any further drop.
But anyway… wow.
Either way, zooming out this far you can see that Bitcoin has never really broken bullish trend - higher highs and higher lows.
Either that’s it, or THAT’S IT, if you know what I mean.
Price on Bitmex (not shown) tapped the 2017 highs as support. Most exchanges got within $200. 20K is a massive psychological level. You can read in the news below what Arthur Hayes said about 20K.
This is a legit support that we want to see defended with the spirit of the Spartans. We need to hold like William Wallace in Braveheart.
This is not time for bulls to get castrated like the statue in Miami.
Weekly RSI is oversold. That really does not happen.
Will the 200 MA hold at the weekly close? I will be watching, because it has in the past, even with huge wicks below.
This is the moment. I want to see this area defended and a close above that red line.
The 4-hour chart is massively oversold with bullish divergence and a major spike in buying volume on the candle that just closed. We should see serious relief here.
Back To 2017 - IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB).  ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data. 
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
Back To 2017
In an unprecedented sell-off driven by the current macroeconomic climate and the non-stop cascade of bad events happening in the crypto market starting with the Terra crash, Bitcoin reached the levels of the previous all-time high in 2017.
The Historical In/Out of the Money (HIOM) is useful when comparing the percentage of addresses making money at two different points in time where prices are at a similar range. The difference in the addresses profiting provides an idea of whether momentum is on buyers’ or sellers’ side.
As Bitcoin broke the $22,000 barrier again on June 15, the number of addresses “in the money” dropped down to the lowest point since the Covid Crash. At the current price of $21,100, only 46% of the addresses currently holding Bitcoin are in the money. But what’s more important here is that the majority of the buyers of this current market cycle are currently experiencing profits.
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for Jun. 15, 2022 - Bloomberg
The Fed rate decision is today. That’s the only thing worth discussing and what all market are waiting to see. It is common for the first reaction to be “wrong. At the last rate hike of 50 bps, markets pumped hard before dropping hard the next days. Now 75 bps is priced in at a 90% chance, so even 75 bps may not be viewed as "bad news.”
Regardless, expect fireworks.
What to watch this week:
  • FOMC rate decision, Chair Jerome Powell briefing, US business inventories, empire manufacturing, retail sales, Wednesday.
  • ECB President Christine Lagarde due to speak, Wednesday.
  • Bank of England rate decision, Thursday.
  • US housing starts, initial jobless claims, Thursday.
  • Bank of Japan policy decision, Friday.
  • Eurozone CPI, Friday.
  • US Conference Board leading index, industrial production, Friday
What are the next levels for the pound? UK is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Some of the main moves in markets:
  • Futures on the S&P 500 rose 0.7% as of 7:24 a.m. New York time
  • Futures on the Nasdaq 100 rose 0.9%
  • Futures on the Dow Jones Industrial Average rose 0.6%
  • The Stoxx Europe 600 rose 1.1%
  • The MSCI World index rose 0.2%
  • The Bloomberg Dollar Spot Index fell 0.6%
  • The euro rose 0.6% to $1.0483
  • The British pound rose 1% to $1.2114
  • The Japanese yen rose 0.7% to 134.50 per dollar
  • The yield on 10-year Treasuries declined 11 basis points to 3.37%
  • Germany’s 10-year yield declined nine basis points to 1.67%
  • Britain’s 10-year yield declined 11 basis points to 2.48%
  • West Texas Intermediate crude fell 0.6% to $118.27 a barrel
  • Gold futures rose 0.8% to $1,828.60 an ounce
Interesting spot here.
On ascending support, at Weekly 50 MA, which is also the Daily 200 MA (not shown).
It’s hard to want to trade anything right now, but if you are actively going after it right now, this has very clearly defined risk (a break down of the blue line and close below).
I am NOT taking this trade, or any other trades for now. This is purely analysis.
Celsius Brings In The Suits
Crypto Lender Celsius Hires Restructuring Lawyers After Account Freeze - WSJ
The cleaning crew has arrived, which makes it pretty evident that some serious damage has been done. Late last night, the WSJ revealed that Celsius has decided to hire restructuring attorneys. Mike Alfred pointed out on my live stream yesterday morning that this would be the best course of action for the company. Rather than trade their way out or hope prices shoot up to cover their books, they have hired a responsible 3rd party. Now we know that the gambling and praying are likely over. There has been no official comment from the law group, but everyone will be biting their nails waiting. The unfortunate part is that if Celsius did open withdrawals, we can be pretty confident that everyone would jump on the opportunity, likely causing deeper insolvency. This issue could take a long time to resolve.
Will History Repeat?
Ethereum crashed by 94% in 2018 — Will history repeat with ETH price bottoming at $375?
As the saying goes, “those who do not learn history are doomed to repeat it.” With far more institutions in the space now than 2018, it’s hard to imagine Ethereum dropping to $375, but I suppose anything is possible. With Bitcoin hitting $20,000 and Ethereum at $1,000, I imagine there will be a significant amount of buying pressure. Enough to hold? We will find out.
Here is a take on those key levels from ex Bitmex CEO Arthur Hayes.
Ex-BitMEX CEO Arthur Hayes Warns Bitcoin and Ethereum on Brink of Epic Collapse - The Daily Hodl
“According to Hayes, on-chain data for Wrapped Bitcoin and Ethereum tell him that most of the liquidations from borrowers failing to meet their obligations have already taken place after this week’s crypto carnage.
With DeFi players posing little threat to the crypto ecosystem, Hayes says that he has his eye on options flows to uncover the line in the sand for dealers or market makers.
“Now let’s focus on the listed and unlisted options flows. Looking at Deribit exchange, most of the open interest is at $20,000 and $1,000 for BTC and ETH, respectively. We can also assume that there are massive over-the-counter structured products centered around those strikes as well.”
In options trading, the strike price is the price level at which the contract’s underlying assets, which in this case are BTC and ETH, may be sold. According to Hayes, the closer we get to $20,000 for BTC and $1,000 ETH, the more market makers have to sell their Bitcoin and Ethereum.
If these levels break, the crypto capitalist warns that the big players have no choice but to sell their BTC and ETH holdings in the spot markets.
“As far as the charts go, you better get out your Lord Satoshi prayer book, and hope the lord shows kindness on the soul of the crypto markets. Because if these levels break, you might as well shut down your computer bc your charts will be useless for a while…
If these levels break, $20,000 BTC and 1,000 ETH, we can expect massive sell pressure in the spot markets as dealers hedge themselves. We can also expect that there will be some over-the-counter dealers and that will be unable to hedge properly and might go belly up.“”
Did 3 Arrows Get Margin Called?
Zhu Su 🔺
We are in the process of communicating with relevant parties and fully committed to working this out
There’s been a rumor floating around that 3AC, Three Arrows Capital, is now insolvent. After 24 hours of conjecture and 48 hours of silence from Zhu Su and Kyle Davies, this Tweet clearly indicates something bad is going on. Their AUM is unknown, but 3AC is reportedly one of the largest funds in crypto. Their collapse would be another notch against the market, but also may have been one of the contributors to this last sell off.
We should be pulling for all of these funds and platforms to succeed, so this would be sad to see.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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