Bitcoin survived another crash. It fell over 20% in less than two days after the U.S. Treasury Secretary, Janet Yellen, commented on its immense electricity consumption and use in illicit activities.
The move lower was so abrupt that it triggered a decline in major public companies that invested in Bitcoin, such as Tesla. The company announced a $1.5 billion investment in January, and Bitcoin reached new all-time highs on the news.
When markets advance or decline, they do so in a trend. The rules of a bullish trend say that the market continuously forms higher highs and higher lows. Thus, to make the most of the trend and to get better entries, many long-term investors focus on buying the higher low. Or, buying the dip.
Square and MicroStrategy Doubled Down on Their Bitcoin Investment
Both Square and MicroStrategy are publicly listed companies. They are pioneers in Bitcoin investment as they converted part of their free cash into Bitcoin.
Square announced last year that it invested $50 million into Bitcoin, roughly about 1% of its assets. MicroStrategy converted its entire excess reserves into Bitcoin in 2020.
While Bitcoin looked for a bottom two weeks ago, Square announced a new investment, three times bigger than the previous one. This time, Square acquired Bitcoins at roughly $52,000/coin in an investment evaluated at $150 million.
Naturally, the news sparked excitement as someone did buy the dip, apparently. Therefore, the price of Bitcoin bottomed, and it recovered all the way back above $50,000.
One day after Square’s announcement, it was MicroStrategy’s time to make public that it acquired more Bitcoins. It invested over $1 billion in Bitcoin, borrowed money, at an average price of $52,765.
There you go, two publicly listed companies doubling down on their Bitcoin investments roughly at the same price – around $52k. As such, the price of Bitcoin bottomed for now, as the market took it as yet another sign of increased adoption.
The trick here is to fully understand the reason for these investments. It becomes obvious by the day that these investments are not in the technology but in the hope that they will yield more in the future.
One thing is for sure. The more companies convert part of their cash into Bitcoin, the bigger the threat of Bitcoin becoming a systemic risk. Regulators will likely step in, should the volatility increase to unwanted levels.