MicroStrategy’s bitcoin bet looks flimsy and is now underwater
Raphael Henrique | light flare | Getty Images
MicroStrategy, the enterprise software maker that has been betting big on bitcoin for the past two years, is now underwater on its holdings of the world’s largest cryptocurrency due to the market slide.
Bitcoin traded around $28,000 each on Thursday morning, recovering somewhat from earlier losses that took the digital token below $27,000. Just last week, it hit a recent high of around $40,000. Its all-time high, just below $69,000, was reached in November.
MicroStrategy’s cost base was around $30,700 per bitcoin, as of March 31, according to its first-quarter earnings report. As of the same date, the company owned approximately 129,218 bitcoins, spending a total of $3.967 billion to acquire them.
MicroStrategy shares, while volatile, enjoyed success alongside bitcoin in late 2020 and into last year. Now, that reflects the tumult facing bitcoin and the broader crypto market, which has been rocked in recent days as investors flee risky assets and an experimental stablecoin project comes under duress.
At their low on Thursday, shares of MicroStrategy fell more than 20% to nearly $134, after falling 25.4% on Wednesday. The stock then rallied all the way and jumped as much as 22% intraday on Thursday.
Still, based on Wednesday’s close, MicroStrategy shares are down about 87% from their bitcoin-era highs of $1,315 on Feb. 9, 2021. That just happened a day after Tesla announced it had purchased $1.5 billion worth of bitcoin, a move that may have been inspired by the purchase of MicroStrategy and the evangelism of its chairman and CEO, Michael Saylor.
Since MicroStrategy disclosed its first bitcoin purchase, in August 2020, Saylor has become one of the most well-known bitcoin boosters from corporate America, garnering a large following on Twitter and speaking at various crypto conferences.
He has made a number of bold predictions and claims about bitcoin, suggesting to CNBC last year that he could eventually have a total market capitalization of $100 trillion and become “a stabilizing influence across the whole world.” 21st century financial system. As of Thursday, bitcoin’s market value was below $600 billion.
MicroStrategy, which generated $510.8 million in revenue in 2021, has been making increasingly risky bitcoin bets. Its initial tranche nearly two years ago was purchased with cash on hand, spending around $250 million including fees and expenses at a time when bitcoin was trading below $12,000 per token .
MicroStrategy then began tapping the debt market to fund additional purchases, issuing $650 million in convertible notes in December 2020 and $500 million in bonds in June 2021. The proceeds from both were used to purchase further more bitcoins.
Michael Saylor, President and CEO of MicroStrategy, speaks at the Bitcoin 2022 conference in Miami, Florida, U.S., Thursday, April 7, 2022.
Eva Marie Uzcategui | Bloomberg | Getty Images
Most recently, on March 29, a subsidiary of MicroStrategy closed a $205 million loan – secured by bitcoin – in a bid to acquire even more bitcoin. On April 5, Saylor announced that MicroStrategy had purchased 4,167 bitcoins at an average price of $45,714 each.
The March 29 loan, issued by Silvergate Bank, is now the focus of attention as bitcoin slides. During MicroStrategy’s earnings call last week, chief financial officer Phong Le said that if bitcoin falls below $21,000 per token, the company could face a margin call, based on conditions. Silvergate’s loan-to-value (LTV) ratio.
“We took the loan at 25% LTV. The margin call happens at 50% LTV. So basically bitcoin needs to be cut in half, or around $21,000, before we have a margin call” , Le explained on May 3. call for earnings. “Having said that, before it hits 50%, we could contribute more bitcoins to the collateral package so that it never gets there, so that we never end up in a margin call situation. “