Bitcoin remained under pressure on Thursday, trading at $73,660 by 01:30 ET (06:30 GMT), as a combination of macroeconomic and regulatory headwinds kept sentiment in the cryptocurrency market subdued. The leading digital asset has struggled to gain traction after a sharp decline through October and early November, with investors weighing the impact of rising U.S. interest rates and a potentially more restrictive regulatory environment.
The latest source of unease came from Strategy Inc. (NASDAQ:MSTR), the business intelligence firm turned Bitcoin proxy, after index provider MSCI confirmed it will remove the company from several of its benchmarks. MSCI determined that Strategy operates more like an investment fund, a characterization that could herald tighter capital conditions for the stock.
Strategy shares fell 4% in aftermarket trade on Wednesday following the MSCI announcement. The index operator had proposed last year to exclude digital asset treasury companies whose holdings represent over 50% of total assets, as part of a broader review into what it deemed “non-operating companies.” Japan's Metaplanet Inc. (TYO:3350), the world's second-largest Bitcoin treasury by coins held, was also slated for removal from MSCI indexes.
Strategy had previously warned that an MSCI exclusion would result in $2.8 billion of its stock being liquidated and would also hurt the broader crypto industry. The company has fueled its Bitcoin purchases chiefly through massive debt and capital issuances, leaving it vulnerable to any pullback. Earlier this year, Strategy sold some of its Bitcoin holdings to meet mounting debt obligations. The recurrence of such a scenario presents more selling pressure for Bitcoin.
Crypto markets have been reeling from a series of growing risks. Hot U.S. inflation data saw markets dial up expectations for more interest rate hikes by the Federal Reserve, which could come as soon as December. Higher rates diminish the appeal of non-yielding, risk-heavy assets like crypto. On the regulatory front, the Democrat sweep of the U.S. midterm elections sparked concerns over greater Congressional scrutiny towards crypto.
Broader crypto prices moved in a flat-to-low range on Thursday, amid a dearth of positive cues for the industry. World no.2 crypto Ether fell 0.3% to $2,048.96, while XRP fell 1.4%. Solana rose 0.3%, while Cardano and BNB fell 0.5% apiece. Among memecoins, Dogecoin fell 1% and $TRUMP fell 0.7%.
The MSCI decision adds a new dimension to the challenges facing crypto-linked equities. Strategy's reliance on debt and capital issuances to fund its Bitcoin purchases has made it a bellwether for institutional sentiment towards the asset class. Any forced selling of its stock could ripple through the ecosystem, potentially exacerbating downward pressure on Bitcoin and other digital assets.
Investors are now watching for further signals from the Federal Reserve on rate policy and from lawmakers on crypto regulation. With few positive catalysts on the horizon, the market appears vulnerable to further volatility.