Crypto stocks Coinbase (COIN) and MicroStrategy (MSTR) rally despite Tesla (TSLA) dumping on Bitcoin

Risk appetites have been steadily increasing as we enter the key earnings season with tech stocks reporting next week. In line with those rising risk appetites, Bitcoin pushed higher at one stage on Wednesday and was eyeing a move to $25,000 before a late Tesla-led purge. However, that was after the close, and before that crypto stocks had benefited from the risk-on moves in Bitcoin and other crypto assets. MicroStrategy (MSTR) closed up 8%, and Coinbase (COIN) also pushed higher, closing up 14%.

Where next for COIN and MSTR?

After the close Tesla reported quarterly earnings that beat on earnings per share (EPS) and was mostly in line on revenue. The finer details showed this EPS beat was helped by Tesla selling most of its Bitcoin holdings last quarter. Elon Musk has been a vocal proponent of the crypto space, and this news was enough to send Bitcoin lower by $700 as we can see below. This pressure has continued through to Thursday with Bitcoin down at $23,000 currently. Michael Saylor must have been thanking Elon for that one!

Bitcoin chart, 1-minute

Microstrategy margin call

During the crypto winter that we recently experienced, and which may return, rumors of Microstrategy and a potentially devasting margin call were rife on social media and indeed on mainstream media. We did cover this fact and identified that Microstrategy had in fact pursued a beneficial strategy during boom times of using debt markets to fund its purchases of Bitcoin. This means that any potential margin call can comfortably be met from its large Bitcoin holdings without troubling its financial viability. The $21,000 level was seen as the line in the sand with many predicting the end of Microstrategy if that level was breached. That price was broken, however, and Microstrategy remains very much a going concern. The $21,000 level was about one very specific loan from Silvergate Capital. 

"As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV, and the margin call occurs 50% LTV," said CFO Phong Le weeks ago. "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 [...] We have 95,643 encumbered Bitcoin, so we have more that we could contribute in the case that we have a lot of downward volatility."

As of the last earnings in March, Microstrategy has nearly 130,000 Bitcoin. It has plenty of debt, but that debt matures from 2025 to 2027 for the most part. Some debt is secured and some convertible, but with nearly 130,000 Bitcoin available that is a large war chest of liquid assets to sell if needed. Bitcoin would need to virtually collapse for MSTR to be threatened in our view. This $21,000 made for some headlines but nothing substantial.

MSTR stock forecast or Bitcoin forecast you chose

A mirror image considering MSTR is a leveraged Bitcoin holding company. So forecast Bitcoin, and MSTR stock will follow. Bitcoin is in a bearish strategy, and the crypto winter has hit an unseasonal warm patch, but the bearish trend remains in place until $28,000 is broken above.

Bitcoin (orange line) with MSTR stock, daily

Coinbase stock forecast

Pretty much the same deal here: a strong correlation between COIN stock and Bitcoin. However, Coinbase has a bit more to it than MSTR and as mentioned its business is under attack from GameStop. GME stock has been getting interest as its NFT marketplace has been outperforming NFT trading on Coinbase so far in July. GameStop is a new entrant to the space but a powerful name among retail traders and carries strong brand recognition. 

Bitcoin versus COIN stock, daily