What happened

Bitcoin (BTC -3.60%) continued its long slide in June 2022. The largest cryptocurrency fell 36.7%, according to data from S&P Global Market Intelligence, dragging many related stocks down with it. For example, software company and Bitcoin investor MicroStrategy (MSTR -5.45%) lost 37.9% while Bitcoin investment fund Grayscale Bitcoin Trust (GBTC -3.90%) dropped 41.3% lower and Bitcoin miner Riot Blockchain (RIOT 0.25%) fell 41.7%.

The crypto market faced the same risk-averse investor behavior as in recent months, fueled by grim inflation reports and economic uncertainty on a global level. Moreover, lawmakers took some steps toward cryptocurrency regulation in June, but the bureaucratic wheels turn slowly, and nobody knows what the long-term legal framework will look like.

So what

If Bitcoin prices continue to fall much further, we'll probably see some consolidation in the cryptocurrency industry. Companies with weak balance sheets and shaky business plans may have to close shop, file for bankruptcy, and sell their assets to stronger rivals. For example, the crypto-focused hedge fund Three Arrows Capital has filed for bankruptcy and liquidation, and crypto-lending specialist Celsius Network has frozen trades, withdrawals, and balance transfers due to "extreme market conditions."

The crypto stocks mentioned earlier are in no immediate danger of bankruptcy, though.

Riot Blockchain is selling some of its Bitcoins in order to pay the bills, but it generated more tokens than it sold in June. The company is also actively investing in its Bitcoin mining infrastructure, adding more mining rigs and improving the performance of older gear through the use of immersion cooling systems.

Grayscale is fighting to convert its Bitcoin trust fund into an exchange-traded fund (ETF) directly tied to Bitcoin's latest spot prices. Investors are reluctant to use a fund that settles transactions only at the end of each trading day. With the intraday pricing of ETF shares, investors can react much faster to changes in this volatile market, so the Bitcoin trust comes with a risk-based discount. In its current form, the Grayscale Bitcoin Trust carries 0.000922 Bitcoins per share, which works out to $18 at current crypto prices. Share prices stand 32% lower at $12.25. The fund managers are currently suing the Securities and Exchange Commission (SEC) to overturn the agency's recent decision to deny a requested transformation from fund to ETF.

MicroStrategy is still buying more Bitcoin, arguing that the digital currency is a great investment at these low prices. The company boosted its Bitcoin holdings by 0.4% in the last two months and now holds roughly 129,700 tokens. The business intelligence company also holds some loans relying on Bitcoin holdings as collateral, raising concerns about the financial impact of plunging Bitcoin prices. However, CEO Michael Saylor claims that the loans don't face any margin calls until Bitcoin prices fall below $3,562 per token, and even then, MicroStrategy could add other types of collateral. Since Bitcoin prices are hovering around the $20,000 mark these days, MicroStrategy appears to stand on solid financial ground at the moment.

Now what

Bitcoin prices have fallen 59% so far in 2022, and all three of the crypto-reliant stocks mentioned above are taking even deeper price cuts. Investors in this sector are nervous, and arguably for good reason. The crypto market is packed with uncertainty, and many investors don't have a firm grasp on what blockchain ledgers can do or what they should be worth.

That being said, this is not the first massive drawdown in cryptocurrency history, and it won't be the last. Cryptocurrencies are evolving and adapting to ever-changing market conditions. As a result, all the investments mentioned above are incredibly risky, and you should be prepared for bumpy roads ahead.

Some of these stocks may be good plays on the crypto market, and their current prices are certainly more attractive than the much higher peaks of last fall. However, it would be wise to keep your cryptocurrency investments relatively small, as the speculative sector separates the chaff from the wheat in this difficult era. Even the reasonably high-quality stocks we talked about here aren't immune to market risks. You must weigh the promise of skyrocketing share prices against the very real risk of going to zero in a bankruptcy or liquidation.

As for Bitcoin itself, I think that this established powerhouse is going places in the long run -- but even then, there are no guarantees that prices will rise again. Be careful out there, dear reader.