That little itch should be telling you something
A reader wrote in to ask me why I thought bitcoin was dropping. Since there is nothing more dangerous than asking a writer to opine on a topic, I opined. But I do think my thoughts on that topic have some relevance to the larger moment right now, so I’m sharing them.  

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I fear we’re in something of a “nah, it’ll be fine” market in terms of risk appetite. The administration seems determined to give bankers what they’ve wanted for years, our Kyle Campbell wrote, which is to lower the regulatory barriers to accessing risk. Is that a good idea? Michael Barr doesn’t think so. Barr, the Fed’s risk Cassandra, argued forcefully this weekend that regulations help curb risks. Given how profitable banks have been in recent years, you’d think everybody would agree with him. 

But, the degree to which the market is really all in on risk is where bitcoin comes in.

I think there are two main drivers pulling down on the price of bitcoin right now. The first is very straightforward: Michael Saylor sold bitcoin. Saylor is the founder and CEO of Strategy, a software company that used to be called MicroStrategy that Saylor turned into a sort of financial perpetual-motion machine. He issued debt and equity to raise money, used the money to buy bitcoin, and then cooked up a plethora of securities that were issued against the bitcoin hoard that allowed him to raise more money to buy more bitcoin. It was like Heather Locklear telling two friends about her shampoo. Then they told two friends, and so on and so on and so on and so on.

But the one thing that the entire Rube Goldberg machine was balanced on was his promise to never, ever, ever sell even one bitcoin. Never. So, what did he do in May? He sold a bitcoin. Actually, he sold 32 bitcoins. Not a lot, but enough just to make it clear to the market that he would. Why back off his promise? Because the price of bitcoin has been falling since October, which is crushing the company’s balance sheet. It lost $13 billion in the fourth quarter and $13 billion in the first quarter. On paper at least. But at some point, Saylor may need to sell a lot of bitcoins to pay back all his investors. The 32 bitcoins were a trial balloon.

The market didn’t take it well. The price of bitcoin fell as low as $60,000, a price it hadn’t seen since 2024. Because once a guy as blindly bullish about bitcoin as Saylor starts selling, it starts a cascade.

The other reason I think bitcoin is falling is because bitcoin is essentially a weather vane for the regular markets. It shows the degree of risk appetite in the market. In market terms, bitcoin is nothing but a gamble. There’s no cash flows to analyze, no P&L statement, no duration risk, no economic fundamentals of any kind. Bitcoin is literally a bet on its price and nothing else, which itself is therefore a reflection of investor psychology. Do you feel like placing a wild, unhedged, uncorrelated bet based on nothing but vibes? Do you feel lucky? How much risk do you want to put on your plate?

The price of bitcoin says that right now the answer is, not that much. It might seem odd to say the mark isn’t all-in on risk right now. The major U.S. stock indexes are hitting record highs, some of the highest profile IPOs in years are about to hit the tape, and bank profits are extremely healthy. And you have an administration itching to give the markets as much risk as it can handle. 

I think, though, that bitcoin is that little itch that’s telling you something. (Yes, that’s two ’80s shampoo commercials pop-culture references in one column.) Is now really the time to overpay for an internet service provider that happens to have some side businesses launching rockets, managing a social-media site and selling compute? Is this really a time to ignore risk?

Nah, it’ll be fine.