Bitcoin Updates: MSTR Takes on Crypto Hedging Burden, Revealing Weaknesses in the Market

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Bitcoin Updates: MSTR Takes on Crypto Hedging Burden, Revealing Weaknesses in the Market

Bitget-RWA2025/11/23 04:34

By:Bitget-RWA

According to Tom Lee, chairman and CEO of Bitmine Immersion, MicroStrategy (MSTR) has become an unusual but essential instrument for crypto investors aiming to shield themselves from market declines. The stock has dropped 43% in recent weeks, as institutional players have increasingly shorted it to balance out losses in their crypto portfolios,

a tactic prompted by the absence of strong on-chain hedging solutions

. Lee referred to

MSTR

as "the most critical stock to monitor at the moment" because it serves as a stand-in for

Bitcoin

highlighting its liquidity and the company's nearly 650,000 BTC in reserves

. This situation has created a contradiction: while MSTR’s price swings mirror the vulnerability of the broader crypto market, they also point to fundamental weaknesses in liquidity and risk management infrastructure.

The move toward shorting MSTR is a result of the breakdown of crypto-native hedging instruments.

Bitcoin and Ethereum derivatives do not offer enough liquidity

, so institutional traders have few options to safeguard their long positions. As a result, many have turned to MSTR’s stock options, which provide a more liquid alternative. "Anyone can utilize

MSTR’s options market to hedge their entire crypto exposure

," Lee explained, stressing that the stock is "bearing the brunt of the hedging demand" from the crypto sector.

This trend has grown stronger since the October 2025 market crash

, which wiped out $20 billion in value and severely impacted liquidity on exchanges.

Market makers—sometimes called the crypto market’s "central bank"—have not yet restored the liquidity levels seen before the crash

, leaving alternative coins, mining stocks, and Bitcoin-related equities like MSTR exposed to steep declines.

Bitcoin Updates: MSTR Takes on Crypto Hedging Burden, Revealing Weaknesses in the Market image 0

The October crash revealed underlying systemic issues that continue despite recent signs of stabilization.

CoinDesk Research reports that order book depth for Bitcoin and Ethereum is still 25-30% lower than before the crash

, and the supply of stablecoins has shrunk by $840 million since November 15. These patterns heighten volatility, as even ordinary trades can cause significant price fluctuations.

Lee connected MSTR’s difficulties to this unstable environment

, arguing that its function as a "release valve" for hedging has made it a central point for market tension. "It really crippled market makers," he remarked, pointing out that liquidity remains thin in major segments.

Some critics contend that MSTR’s dependence on Bitcoin’s price makes it a flawed hedge. While the stock often moves in tandem with BTC, it is also affected by traditional stock market factors, such as earnings announcements and broader economic trends. For instance, MSTR’s

third-quarter earnings release in October 2025 showed a 14% drop in share value

as its market-cap-to-net-asset-value (mNAV) ratio fell sharply. Nevertheless, Lee’s assessment is that MSTR’s unique position—bridging crypto and equity markets—has made it vital for investors trying to manage the current liquidity squeeze.

The wider consequences of this development are still unclear. While some market observers see the hedging approach as a short-term fix, others, including Lee, believe it exposes more profound weaknesses in crypto’s infrastructure.

The underlying mechanics of the crypto market remain fragile

, he cautioned, noting that the reliance on MSTR highlights the lack of advanced risk management tools.

As the year draws to a close, traders face a market where even routine trades can carry significant risk

, and the outlook for lasting stability is still uncertain.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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