Cryptocurrencies hit a record low due to Trump’s statement, but that’s not the real problem

A new round of trade war between the US and China has triggered a series of sell-offs in the stock markets, hitting cryptocurrency-related stocks particularly hard. On Friday, following Donald Trump’s announcement of a 100% tariff on Chinese goods, the S&P 500 index fell by 2.7%, dragging down the entire crypto sector. Amid the flight from risky assets, shares of leading crypto companies showed a significant decline: Coinbase fell by 7.75%, MARA Holdings — by 7.67%, and Bullish — by 9.42%.

For MicroStrategy, the largest corporate holder of bitcoin, Friday’s 4.84% drop in shares was a reason to discuss more serious fundamental problems. Analysts' attention was drawn to a key indicator, the market capitalization to net asset value (mNAV) ratio, which fell below 1,180, reaching its lowest level in 19 months.

According to Geoffrey Kendrick, head of digital asset research at Standard Chartered, maintaining an mNAV above 1.0 is critical for companies building bitcoin funds. A drop in this indicator signals a weakening of the balance sheet and increases pressure on the company’s shares, revealing structural vulnerabilities in MicroStrategy’s business model.

The problem is exacerbated by the financing structure used by MicroStrategy and similar companies. They raised capital to buy bitcoins through PIPE (private investment in public equity) deals. According to a report by CryptoQuant, the shares of such companies are now heading towards the discounted prices at which early investors came in, and some of them have already faced losses of up to 55%.

Currently, MicroStrategy’s bitcoin reserves are estimated at about $ 78 billion, while the company’s market capitalization is $ 94 billion. This $ 16 billion premium to the value of the underlying asset raises more and more questions. Most analysts agree that this premium reflects not so much the company’s financial performance (annual revenue of less than $ 350 million) as it does investors' faith in founder Michael Saylor and his efforts to promote bitcoin-backed debt and investment products. However, in a market downturn, this «faith premium» can quickly evaporate.