Bitcoin is a great deal because so many different forces always affect its value. (Cryptography: BTC) The price is not very volatile. So, as has been around for the past few weeks, if there are significant purchasing actions by large owners who insist on keeping the coin’s storage forever, it is worth paying attention.
After all, famous purchases can be interpreted as a tailwind for a higher price. Or it could be seen as a risk, as it could precede later news that the same actor is abandoning the greener pasture location.
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With these dynamics in mind, let’s break down who’s buying it now and why it will be a key component of the coin’s performance in the coming years.
strategy (NASDAQ:MSTR)Originally a software business known as MicroStrategy, it now claims to be Bitcoin Treasury, and bought $555.8 million in Bitcoin in the week of April 14th to April 20th.
Currently, it has an asset of around $36.5 billion, with an average price of $67,766 per token, raised using funds from a combination of borrowing and stock issuance. These massive purchases come just after the bigger ones executed at the end of March. This was worth $1.9 billion.
Given that this strategy has previously disliked selling Bitcoin and may not do it unless forced, some investors can interpret the ongoing trust in the coin as a reason to buy it. After all, it controls about 2.5% of all the ciphers currently in circulation. This is actually a very large proportion of assets that are highly distributed and decentralized in nature.
The deprivation of much supply from the market will increase competition among the remaining buyers that are still on sale, leading to price increases over medium and long term. In particular, when combined with other rare-generating mechanisms in Bitcoin, this kind of supply control makes mining more difficult over time, making it much more expensive for future buyers to secure their positions and can significantly reward those who have entered previously, like strategies.
At the same time, investors may be interested in buying more Bitcoin due to the advertising that tends to bring about by the strategy purchase. There is something convincing about having a major evangelist of assets that are proudly buying at virtually any price.
Furthermore, strong support for the strategy of purchasing and holding Bitcoin is something that owners can benefit. This is to encourage investors to take action that raises prices over time.
Strategic purchasing activities have some drawbacks. We use debt and stock issuances to fund purchases, as mentioned above. This means that if Bitcoin prices drop sufficiently, they could be forced to settle assets to make creditors a whole.
In other words, you could be forced to sell a large amount of crypto, which could create a downward spiral at the price of the coin.
The outcome may not occur. Still, it is important to recognize that as strategies continue to raise more and more total Bitcoin supply, risk increases. There is no reason to refrain from purchasing coins, but it is worth noting as forced sales cascades can actually be a good purchase opportunity, assuming you can buy the stomach.
Overall, for now, repeated reveals of the strategy of never selling Bitcoin, and more repeated purchases, are a fierce tailbone of medium to medium strength. But, in principle, a large investor loading into an asset cannot be an investment paper for that asset or an important reason to buy it. It’s simply a bad investment form to try and borrow someone else’s beliefs to make a decision for yourself, and it won’t work out in the long run anyway.
So, if you’re willing to keep Bitcoin, you’ll buy it, but don’t feel pressured to copy what your strategy does.
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Alex Carchidi has a Bitcoin position. Motley Fool has a position and recommends Bitcoin. Motley Fools have a disclosure policy.
Is this one new reason to buy Bitcoin, or one new reason to be careful? Originally published by The Motley Fool
