Looks Like Bitcoin (BTC-USD) Could Be Reaching “Maximum Pain”

MicroStrategy (NASDAQ:MSTR) and Three Arrows Capital might need to hand over some Bitcoin (BTC-USD) and Ether (ETH-USD), respectively, to avoid big trouble.

MicroStrategy said in its May earnings call that “we’d have a margin call” around $21,000 for BTC.

Source: Satheesh Sankaran / Shutterstock.com

Unfortunately, that day is now here. Just this morning BTC revisited $21,000 (and a new 52-week low of $20,075).

However, CEO Michael Saylor (and analysts who follow him) assured Bloomberg that MicroStrategy can easily avoid this by posting collateral, instead, as it has plenty available.

If you’re still a fan of MSTR as, essentially, a bitcoin proxy for a stock portfolio, here’s another tidbit you may like:

Insider buying: A board member, Carl Rickertsen, just bought $608,000 of MSTR stock on Monday! I guess Saylor isn’t the only “perma-bull” at MicroStrategy.

Three Arrows Capital, on the other hand, might NOT be able to “meet a margin call,” rumor has it:

The crypto hedge fund “has been aggressively paying back AAVE debt against its 223k ETH / $264mm position to avoid liquidation,” per an analyst tweet cited in Cointelegraph. And clients are none too happy about their money being potentially used to do it.

Bottom line: Between MicroStrategy and Three Arrows, we’ve got a prominent bitcoiner and a crypto VC – both taking on water fast.

For Three Arrows Capital, its days investing in prominent cryptos, lots of DeFis, and NFT games might be numbered. Its co-founder even removed all of them from his Twitter bio – leaving just one reference to bitcoin. Meanwhile, the rest of us are wondering:

What Has Celsius Been Up To While Savings Accounts There Are “Paused”?

Celsius Network (CEL-USD) has “about $12 billion in assets under management as of May,” Blockworks reports. Those crypto assets are now failed or struggling – and liquidity has dried up fast.

Meanwhile, Celsius has been trying to stay afloat. While all its user accounts have been “paused” for three days (and counting), Celsius has:

• Lawyered up with a high-profile D.C. firm, according to an anonymous tip to The Wall Street Journal.
• Deposited $28 million into its Wrapped Bitcoin (wBTC-USD) wallet on Ethereum (ETH-USD), reports Cointelegraph.This was apparently “to pay down debt, [so] their new liquidation price will move to $15,182,” concludes the crypto analyst quoted by Cointelegraph.
• Moved $247 million worth of users’ wBTC that Celsius had staked on the DeFi platform Aave (AAVE-USD). All this wBTC was sent to the FTX (FTT-USD) exchange.
• Brushed off its rival Nexo (NEXO-USD) when it privately offered to “help in liquidity provision,” according to a Nexo spokesperson.

But Nexo’s response was to send Celsius a formal “letter of intent” (LOI) to buy Celsius outright:

After what appears to be the insolvency of @CelsiusNetwork and mindful of the repercussions for their retail investors & the crypto community, Nexo has extended a formal offer to acquire qualifying assets of @CelsiusNetwork after their withdrawal freeze. https://t.co/JFtKTHRLcY

— Nexo (@Nexo) June 13, 2022

My take: An acquisition might be the best-case scenario for Celsius users – and crypto, generally.

“Celsius is first looking for possible financing options from investors,” reports The Wall Street Journal. But venture capital is already “drying up”…while all Celsius’ dirty laundry is being aired in public. So, more funding might be hard to come by, other than acquisition!

Sadly, if Celsius goes bankrupt, it has no obligation to make its depositors whole…as users will see way down in Item 13 of the Terms of Use they signed. And there’s no FDIC insurance to save the day.

I think we can all agree – it’s a damn shame for $12 billion of crypto to get wiped off the map. If someone like Nexo can take over, it could be users’ best chance of seeing some money back.

Next Question: When Will We Get a Bitcoin Bottom?

These wild news stories aren’t the only thing suggesting we might be in “a period of maximum pain!”

When you turn to the charts and indicators for bitcoin, you’ll start to see “capitulation,” where even long-time bitcoiners are giving up their BTC.

Glassnode charts this as “Dormancy Flow,” tracking these coins against BTC’s market cap. And this indicator just revisited its level from the 2019, 2015, and 2011 bottoms!

Below, Fidelity’s global macro analyst maps it out for us. In his chart, BTC prices are on top (black line), with Dormancy Flow in the multi-colored line at the bottom:

The next chart shows how technically oversold Bitcoin is. Glassnode’s dormancy flow indicator is now to levels not seen since 2011. /END pic.twitter.com/O5SevpQf4K

— Jurrien Timmer (@TimmerFidelity) June 15, 2022

But how long will this bottoming/capitulation last? Well, bitcoin “can persist in that state for some time (order of months in 2018 to a year in 2015),” Glassnode further notes.

That observation is based on another indicator, the MVRV Z-Score. This one involves current price versus the Realized Price (or the cost basis of all bitcoin in circulation). As you might recall, Realized Price gave us the key level of $24,000 that Luke Lango of Ultimate Crypto has advised us to watch.

Now, bitcoin’s MVRV Z-Score is also signaling “oversold.” But unlike the other indicator, this one hasn’t quite gotten down to its level from previous bear-market bottoms.

Experience also tells us we’re not out of the woods quite yet. Mass panic and selling is only “Stage 2” of the bear, as Jason Yanowitz of Blockworks observed on Monday. If we’re at “max pain,” then next “comes max exhaustion. There are no bounces. There are no narratives. Prices consolidate sideways or slowly move down. It’s boring.”

Well, here’s to bitcoin becoming “boring” again! Let’s hope that happens very soon, so this can actually be fun again after that.

Listen Now: New Podcast Episode

Heard about all those finance guys leaving Wall Street for crypto/DeFi? Our own Charlie Shrem talks to one of them in his latest Untold Stories podcast.

In Tuesday’s episode, Charlie interviews the founder of Integral, “the world’s first DeFi primitive for large orders,” who goes by a pseudonym (0xDorsal), hedge-fund style. You’ll hear how decentralized exchanges (DEXs) have evolved…how Integral is tackling problems like bots and front-running…and what’s coming next from Integral – and in the crypto industry, in general. Go here to listen now.

P.S. Charlie and Luke are seeing a new era emerging from the ashes of this painful period in cryptos.

And a few tiny, off-the-radar cryptos will become the biggest cryptos in the world and mint the next wave of millionaires.

Charlie and Luke reveal the name and ticker symbol to one of these cryptos in a free briefing last night – if you missed it, click here to watch now.

On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.