President Trump just imposed new tariffs on goods coming out of Canada, Mexico, and China. The U.S.’s North American trading partners promised retaliation. Trump suggested tariffs on the European Union are coming next.
The market’s response was immediate with all major indices plunging hard as fears of a global trade war mushroomed. And it wasn’t just stocks that reacted negatively.
Bitcoin (CRYPTO:BTC) plummeted from $102,000 on Friday to around $95,000 on Monday morning, a near 7% loss (it had been as low as $91,000). Ethereum (CRYPTO:ETH) was even worse, losing well over a third of its market cap before bouncing off its lows. This does not bode well for Bitcoin hoarder MicroStrategy (NASDAQ:MSTR).
Although the cryptocurrency trading stock only lost 1.5% on Friday, its stock was tumbling hard in pre-market trading as the new week began, falling 8%. An all-out trade war could see MicroStrategy’s valuation eviscerated.
A global shakeup
Bitcoin’s price tumbled in the wake of Trump announcing tariffs on Canada, Mexico, and China
Stocks lost $1.5 trillion of market capitalization as 43% of all imported goods — $1.3 trillion worth of U.S. trade — will be subject to tariffs. Canada and Mexico will face tariffs of 25% on products exported to the U.S. while China will see a 10% hike. These are the highest levels in over 50 years.
Certain industries will feel the impact more than others, such as autos and oil, while Mexico supplies over 60% of fresh produce to the U.S. So why is crypto, and specifically Bitcoin falling? Some $800 billion in crypto market cap was demolished, which some note is even worse than when FTX collapsed.
Bitcoin has been touted by its proponents as a safe haven investment, a hedge against inflation and uncertainty. Increasingly, though, that is not proving true. It reacts negatively to the sort of volatility around sensitive issues, making it more like a tech stock, which some argue it really is.That also makes it far riskier than many believe.
Assuming even more risk
MicroStrategy CEO Michael Saylor has made the nominal data analytics shop codependent on Bitcoin’s value
MicroStrategy has hitched its wagon to Bitcoin, for better or worse. So far it has been for the better, but these tariffs could prove to be its undoing. Reuters quotes Pepperstone lead researcher Chris Weston as saying “Crypto is really the only way to express risk over the weekend, and on news like this crypto resorts to a risk proxy.”
We’re in an increasingly risk-off market and investors are looking for true safe-haven investments that have withstood the test of time. It is why gold is up 6% in the last month and 38% in the last year.
MicroStrategy, though, has been accumulating ever more of this risky asset. For 12 consecutive weeks, CEO Michael Saylor has regularly purchased bitcoin. Last week he disclosed he had bought 10,107 units to bring MSTR’s total holdings up to 471,107 bitcoin at an average of $105,596 each. This week we’ll likely find out he did it for a 13th time.
Because MSTR stock is closely correlated to the price of Bitcoin, investors are at risk of seeing their investment’s value collapse if tariffs ignite a selloff in the crypto.
Counting on blind faith
While MicroStrategy has a legacy data analytics business, it is no longer the focus of the company and it shows in its dwindling performance. Revenue fell 8% over the first nine months of 2024 to $342.7 million while it recorded a half-billion loss versus a $340 million profit in the year-ago period. At the same time, debt has ballooned to over $4.2 billion, twice the load it carried in 2023.
And it just announced its new preferred stock launched at $80 per share, which it estimates will net it $563.4 million in cash. MicroStrategy plans to use the proceeds primarily to buy even more bitcoin. It also dramatically increased its shares outstanding 30-fold to buy more of the crypto.
The only way MicroStrategy’s strategy works is if Bitcoin keeps rising. It is like a Ponzi scheme on steroids, but one where only Saylor is buying. Tariffs could be its undoing.
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