Bitcoin (CRYPTO:BTC) briefly dropped below $100,000 as the markets wobbled over the release of China’s DeepSeek artificial intelligence app that catapulted it to the forefront of the technology.
Although the cryptocurrency climbed above the psychological threshold again in morning trading, it remains under pressure due to President Trump’s trade policies and an upcoming meeting of the Federal Reserve. It’s increasingly becoming a risk-off market, which continues to pressure Bitcoin pricing.
In such an environment, MicroStrategy (NASDAQ:MSTR) stock is falling 2.5% Monday. Already down 35% from all-time highs hit in November, the Bitcoin Treasury Company may soon test recent lows. A collapse in the crypto market could send MSTR stock hurtling lower.
A revolution in revolutionary tech
China’s DeepSeek shook the AI market after leapfrogging to the forefront with a cheaper, more efficient model
DeepSeek upended the tech sector because of its revolutionary advances. The large language model was trained in just two months using a relative handful of underpowered Nvidia (NASDAQ:NVDA) chips compared to the veritable array of high-powered graphic processing units (GPUs) U.S. models require.
The DeepSeek R1 model also cost just a fraction of its peers, and as it is open-source, which allows users to tinker with the algorithm to fine-tune results, the LLM promises to completely transform — simultaneously undermine — the existing AI paradigm.
The tech sector reeled on the development and the Nasdaq exchange and the S&P 500 index tumbled. As Bitcoin typically correlates closely with the market’s high-flying tech sector, the risk aversion creeping into the trade promises a further realignment in the crypto’s pricing.
Full-steam ahead
As market pressure grows, Bitcoin faces a significant price correction that could send MicroStrategy reeling
MicroStrategy is not allowing market turmoil to interfere with its own plans. For the 12th straight week, the company purchased more bitcoin, this week buying 10,107 units to bring its total holdings up to 471,107 bitcoin. It paid an average of $105,596 each.
CEO Michael Saylor also unveiled his plans for the preferred stock plan to buy even more bitcoin.
MicroStrategy announced it will sell 2.5 million shares of a new preferred stock with a $100 liquidation preference. The Series A Perpetual Preferred Stock (STRK) is initially convertible into one-tenth of one share of Class A MicroStrategy stock at a conversion price of $1,000 per share of MSTR stock. It will also feature an 8% cumulative preferred dividend.
The company previously said the purpose of creating the preferred shares is to strengthen its balance sheet and acquire more bitcoin.
Last week, shareholders approved Saylor’s plan to massively dilute shareholders by increasing the shares outstanding from 330 million to 10.3 billion. It was not popular with most investors, though, as it only passed with 56% support. As Saylor owns 47% of the voting rights, very few outside investors wanted to see it happen.
Risk pressure mounts
The risk with preferred stock is it is sensitive to rising interest rates. When rates rise, the value of preferred stocks tends to fall because their fixed dividend payments become less attractive compared to assets with higher yields.
With inflation still climbing, the Federal Reserve is expected to hold tight on interest rates, though the mood could change in the near future to raise them once more. That could put additional pressure on an overheated and fragile stock market.
While President Trump is making good on his promise to make the U.S. the “crypto capital of the planet,” his failure to specifically mention Bitcoin disappointed and a vagueness over his plans for crypto has caused enthusiasm to wane. Moreover, rising trade tensions with trading partners is causing investors to seek out more risk-averse trades.
Key takeaway
Bitcoin will be coming under increasing pressure. Arthur Hayes, founder of BitMEX, a crypto exchange and derivative trading platform, predicted a major price correction of 30%. In an X post, Hayes wrote, a “financial crisis” will send Bitcoin to $70,000.
A correction of that magnitude could send MicroStrategy stock reeling far lower than where it stands now. It strains under a heavy debt load from its bitcoin buying binge and can only satiate itself with more at the expense of shareholders.
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