Strategy (MSTR) has become a go-to tool for crypto investors looking to manage risk, which is part of the reason why Bitcoin has fallen 43% in the past month, according to Bitmine Chairman and CEO Tom Lee.
“(Strategy) is probably the most important stock watch right now, because it's the Bitcoin agent and it's the most liquid name,” Lee said in an interview with CNBC on Thursday.
With limited options to directly hedge losses in the crypto market, institutional investors are turning to shorting strategy stocks instead. The company holds approximately 650,000 Bitcoins. BTC$84,569.00whose stock price is closely related to Bitcoin's performance.
“In the crypto world, if you want to hedge your losses on Bitcoin or Ethereum, it seems like there's no other way to hedge than by shorting a proxy liquid stock, and that's MicroStrategies,” Lee said.
He also added about crypto-native hedging tools such as Bitcoin and Ether derivatives. Ethereum$2,759.61there is not enough liquidity or depth for large companies. “People with large long positions in Bitcoin have very limited ability to hedge them with crypto derivatives,” he said.
But Strategy offers a workaround, he explained. “Someone can use[Strategy’s]Option Chain, which is very liquid and can hedge all cryptocurrencies.”
In effect, “[the strategy]essentially absorbs all the hedging pressure that the crypto industry is trying to do to protect longs,” he said.
Lee also pointed to the lingering effects of the October 10 market crash, which wiped out $20 billion in value and disrupted liquidity across exchanges. “This has really paralyzed market makers,” he said, describing them as the “central bank” of cryptocurrencies.
Since then, cracks in the system remain, and liquidity remains thin for altcoins, miner stocks, and Bitcoin agents like Strategies. MSTR has been hit hardest by the current economic downturn, in part because it acts as a pressure valve for other markets, Lee believes.
He believes that the crypto market plumbing remains fragile and that the strategy's role as a hedge is a symptom of deeper structural problems.
