MicroStrategy Reportedly Loses $1.8 Billion As Crypto Prices Plunge
MicroStrategy Inc, the largest corporate owner of Bitcoin, is reportedly sitting on $1.8 billion in unrealized losses from its purchases.
The Tysons Corner, Virginia-based software company and its subsidiaries hold roughly 130,000 Bitcoin, worth about $2.2 billion at today’s price. Bitcoins were purchased at a total cost of nearly $4 billion, and each Bitcoin cost about $30,369. This now places the company $1.8 billion in the red.
Can MicroStrategy Keep Up?
Chairman Michael Saylor had previously said that the company would never sell Bitcoin. The refusal to sell means that the company is sitting on significant paper losses. In addition, the company recorded an impairment charge of $917.8 million after it reported a loss related to the decline in the price of Bitcoin earlier this year.
MicroStrategy classifies Bitcoin as an intangible asset, meaning the company must mark any drop in the asset’s value permanently. If it chooses to sell its Bitcoin, it must report capital gains taxes to the Internal Revenue Service.
Saylor stepped down as CEO of MicroStrategy in August 2022 to focus on the company’s Bitcoin strategy after it reported a $1 billion loss. Since then, the company splashed $6 million in excess cash on 301 Bitcoins in September 2022. Its total purchase of 301 Bitcoins is already under water, as the average Bitcoin price has fallen nearly 15% since then.
The company began buying Bitcoin in 2020. CEO Michael Saylor was adamant that the cryptocurrency was a lower-risk asset than cash or gold.
“In an expansionary monetary environment, you want scarce assets,” Saylor told Bloomberg in February 2021. “The scarcest asset in the world is Bitcoin. It’s digital gold.”
Are there signs of a margin call in sight?
In June 2022, Saylor denied that MicroStrategy received a margin call for a $205 million bitcoin-secured loan taken out with Silvergate Capital. A margin call occurs when an investor borrows money to trade that is a multiple of an initial amount called margin. When the margin value falls below a certain threshold, the investor must pay additional funds to keep the trade open.
Saylor said the company had enough Bitcoin to keep the loan safe unless the Bitcoin price fell below $3,500.
A clear regulatory path is needed
Speaking to CNBC on November 10, 2022, Saylor said that the recent collapse of FTX is both a boon for Bitcoin and devastating for the cryptocurrency industry. Unlike tokens on exchanges, Bitcoin is a commodity that can cover itself, he argued.
He believes regulators need to provide clear guidance on how to “register a digital security, a digital currency, a digital token and your digital exchange.”
At $16,856 per Bitcoin, the price is higher than MicroStrategy’s first Bitcoin purchase of 2020.
At the time, the company bought 21,454 BTC at around $11,652 per Bitcoin.
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