The largest business owner of bitcoin is facing a bill – Quartz

MicroStrategy is known for owning more bitcoin than any other listed company. As of June 14, the Virginia-based business intelligence company has 129,218 bitcoins, more than two and a half times as much as Tesla, the second largest bitcoin owner. The bitcoin is now worth around $ 2.9 billion, less than half of the around $ 6 billion it was worth just two months ago.

MicroStrategy CEO Michael Saylor believes so deeply in the promise of the original cryptocurrency that the company took out a $ 205 million loan from Silvergate Bank to buy bitcoin worth $ 190 million in April. But since then, the cryptocurrency market, which was already declining, has fallen in free fall.

“Bitcoin needs to be halved to around $ 21,000 before we can have a margin call,” MicroStrategy President Phong Les said in May during a revenue call. But that was exactly what happened. In the two months since MicroStrategy’s last bitcoin purchase, the cryptocurrency lost more than half of its value. As of June 14, MicroStrategy has lost $ 1.1 billion on bitcoin efforts and may now have to provide more collateral on the loan.

Under the terms of MicroStrategy’s loan agreement with Silvergate Bank, a margin call can be triggered if bitcoin falls below $ 21,000 per coin – which, depending on your data source, may already have done so. The website CoinGecko clocked bitcoin’s lowest value at $ 21,046.95 around 10pm Eastern June 13, but Bloomberg reported the lowest at $ 20,824.

MicroStrategy did not respond to a request for comment, and a Silvergate Bank spokesman declined to comment.

Although it is unclear whether the margin call will take place or not, MicroStrategy’s response to the bitcoin downturn may herald how a broader set of companies that have messed up their finances with crypto, including Tesla, will navigate the ongoing “crypto winter.”

MicroStrategy’s bitcoin effort

Launched in 1989 and developing data-making tools to help companies make decisions, MicroStrategy purchased its first $ 21,454 bitcoins for $ 250 million in August 2020, citing concerns that the US dollar would lose value due to the pandemic. government stimulus spending and political uncertainty around the world. “This investment reflects our belief that bitcoin, as the world’s most widely used cryptocurrency, is a reliable store of value and an attractive investment asset with more long-term appreciation potential than holding cash,” Saylor wrote in a statement at the time.

MicroStrategy was not the only listed company to invest in bitcoin. The Jack Dorsey-powered payment company Block (then called Square) bought $ 50 million in bitcoin in October 2020 as a “hedge” against market downturns, and Elon Musk’s Tesla bought bitcoin for $ 1.5 billion by February 2021 to give itself “more flexibility to further diversify and maximize the return on our cash,” according to an SEC file.

But no other company has invested in cryptocurrencies as aggressively as MicroStrategy. The company bought more than $ 1 billion by the end of 2020, and then, after the price of bitcoin rose above $ 50,000 for the first time in February 2021, it bought another $ 1 billion in a single day. In a statement announcing the acquisition, Saylor said MicroStrategy had two corporate strategies of similar significance: “growing our analytics software business and acquiring and holding bitcoin.”

MicroStrategy has now spent more than $ 4 billion on bitcoin – which is more than twice the company’s market value of $ 1.7 billion. Along the way, MicroStrategy transformed from a medium-sized software company into a stock trading vehicle to speculate on the future value of bitcoin.

Unfortunately for MicroStrategy, it made most of its bitcoin purchases as the crypto markets approached the peak. In addition, institutional investors have flocked to the crypto market, linking the fate of bitcoin to trends in traditional financial markets; As a result, cryptocurrencies have proven to be a lousy hedge against inflation and market turmoil. As of June 14, MicroStrategy’s cryptohorde is worth about $ 1.1 billion less than what the company paid for it.

But even though bitcoin has fallen, MicroStrategy still has to invest. “Our strategy with bitcoin has been to buy and hold, so to the extent that we have excess cash flows or we find other ways to raise money, we continue to put them into bitcoin,” CFO Phong Le told the Wall Street Journal in January. .

Will MicroStrategy meet a margin call?

This week, Saylor told the Journal that he did not believe a margin call would take place, but warned that “the company has plenty of extra security if we need to post more.” IN a tweet from June 14thSaylor said that MicroStrategy has anticipated volatility and “structured the balance so that it can continue to #HODL through adversity.”

Mark Palmer, an equities analyst at financial services firm BTIG, told Reuters he does not see any circumstances where MicroStrategy will need to sell any of its bitcoin holdings. Palmer said that if necessary, MicroStrategy has enough “unloaded bitcoin” to add as extra security.

MicroStrategy’s bitcoin efforts, which once helped the stock jump almost 10 times its value between February 2020 and February 2021, have now pulled it down. The stock’s share price fell 72% in the last six months, although it rose 1.5% on June 14 despite the ghost of a margin. In the long run, it seems that MicroStrategy’s fate seems to be more related to the scams of bitcoin, an unregulated and highly volatile alternative currency, than to the company’s core business.