MicroStrategy is known for owning more bitcoins than any other publicly traded company. As of June 14, the Virginia-based business intelligence company owned 129,218 bitcoins, more than two and a half times more than Tesla, the next largest bitcoin owner. This bitcoin now costs about $ 2.9 billion, less than half of the approximately $ 6 billion it cost just two months ago.
MicroStrategy chief Michael Sailor believes so deeply in the promise of the primary cryptocurrency that the company took out a $ 205 million loan from Silvergate Bank to buy $ 190 million worth of bitcoins in April. But since then, the cryptocurrency market, which was already falling, has fallen freely.
“Bitcoin needs to halve by about $ 21,000 before we have a margin call,” MicroStrategy President Fong Les said in a profit talk in May. But that’s exactly what happened. In the two months since MicroStrategy’s last bitcoin purchase, the cryptocurrency has lost more than half its value. As of June 14, MicroStrategy has lost $ 1.1 billion in its bitcoin bet and may now need to provide more collateral for its loan.
Under the terms of MicroStrategy’s loan agreement with Silvergate Bank, a margin claim can be triggered if bitcoin falls below $ 21,000 per coin – which, depending on your data source, may have already been done. The CoinGecko website reported the lowest level of bitcoin at $ 21,046.95 around 10pm east on June 13, but Bloomberg reported the lowest level of $ 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 happen or not, MicroStrategy’s response to the decline in bitcoin may show how a wider range of companies that have confused their finances with crypto, including Tesla, will focus on the ongoing “crypto winter “.
Bitcoin bet on MicroStrategy
Launched in 1989 and developing data mining tools to help businesses make decisions, MicroStrategy bought its first 21,454 bitcoins for $ 250 million in August 2020, citing fears that the US dollar would lose value due to the pandemic, government incentives and political uncertainty around the world. “This investment reflects our belief that bitcoin, as the world’s most widely used cryptocurrency, is a reliable means of storing value and an attractive investment asset with a longer-term potential for appreciation than holding money,” Sailor said in a statement. time.
MicroStrategy was not the only publicly traded company to rely on bitcoin. Jack Dorsey-run payment company Block (then called Square) bought $ 50 million in bitcoins in October 2020 as a hedge against a market downturn, and Elon Musk’s Tesla bought $ 1.5 billion in bitcoins by February 2021. . to provide “more flexibility to further diversify and maximize the return on our money”, according to SEC documentation.
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 jumped above $ 50,000 for the first time in February 2021, bought another $ 1 billion in one day. In a statement announcing the purchase, Sailor said MicroStrategy has two corporate strategies of similar importance: “expanding our business with enterprise analysis software and acquiring and holding bitcoins.”
MicroStrategy has already spent more than $ 4 billion on bitcoin – more than twice the company’s $ 1.7 billion market capitalization. Along the way, MicroStrategy is transforming from a medium-sized software company into a stock trader to speculate on the future value of bitcoin.
Unfortunately for MicroStrategy, it made the bulk of its bitcoin purchases as crypto markets approached their peak. Plus, institutional investors have accumulated in the crypto market, linking the fate of bitcoin to trends in traditional financial markets; as a result, cryptocurrencies proved to be a bad hedge against inflation and market turmoil. As of June 14, the crypto horde of MicroStrategy costs about $ 1.1 billion less than what the company paid for it.
But even as bitcoin collapsed, MicroStrategy continued to invest. “Our strategy with bitcoin is to buy and hold, so as long as we have excess cash flow or find other ways to raise money, we continue to invest it in bitcoin,” chief financial officer Fong Le told the Wall Street Journal in January.
Will MicroStrategy face a margin claim?
Sailor told the Journal this week that he did not think there would be a margin call, but warned that “the company has a lot of extra collateral if we need to publish more.” In a June 14 tweet, Sailor said MicroStrategy had anticipated instability and “structured its balance so that it can continue to #HODL through difficulties.”
Mark Palmer, a capital research analyst at financial services firm BTIG, told Reuters he did not see “a circumstance in which MicroStrategy will have to sell any of its bitcoin holdings.” Palmer said that if necessary, MicroStrategy has enough “unencumbered bitcoins” to publish as collateral.
MicroStrategy’s bitcoin bet, which once helped stocks jump nearly 10 times above their value between February 2020 and February 2021, has now dragged it down. The stock price has fallen 72% in the last six months, although it rose 1.5% on June 14 despite the ghost of a margin call. In the long run, the fate of MicroStrategy seems to be more tied to the vagaries of bitcoin, an unregulated and highly volatile alternative currency, than to the company’s core business.
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