MicroStrategy’s Bitcoin bet looks shaky and is now underwater

Rafael Henrique | Light Rocket | Getty Images

MicroStrategy, the enterprise software maker that has bet a lot on bitcoin over the past two years, is now under water with its holdings of the world’s largest cryptocurrency due to a market falter.

Bitcoin traded at around $28,000 per piece Thursday morning, recovering somewhat from previous losses that sent the digital token down below $27,000. Just last week, it touched a recent high of around $40K. Its all-time high, just under $69,000, was reached in November.

MicroStrategy’s cost basis was approximately $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, having spent a total of $3.967 billion to acquire them.

MicroStrategy’s stock, though volatile, enjoyed success alongside bitcoin in late 2020 and into last year. Now, this reflects the turmoil facing Bitcoin and the cryptocurrency market in general, which has been affected in recent days as investors flee risky assets, and as an experimental stablecoin project is under duress.

At their lowest on Thursday, shares of MicroStrategy tumbled more than 20% to nearly $134, after dropping 25.4% on Wednesday. The stock then soared and jumped 22% on the day Thursday.

However, based on Wednesday’s close, MicroStrategy shares are down about 87% from their bitcoin-era highs of $1,315 on February 9, 2021. This came just a day after Tesla announced it had bought $1.5 billion worth of bitcoin, a move The influence may have been inspired by the MicroStrategy purchase and the evangelization of its Chairman and CEO, Michael Saylor.

Since MicroStrategy revealed its first bitcoin purchase, in August 2020, Saylor has become one of the most popular bitcoin boosters in corporate America, amassing a large following on Twitter and speaking at several crypto conferences.

He made a number of bold predictions and claims about bitcoin, suggesting that CNBC last year could eventually have a total market cap of $100 trillion and become “a stabilizing influence across the entire financial system of the 21st century.” As of Thursday, Bitcoin’s market capitalization was just under $600 billion.

MicroStrategy, which generated $510.8 million in revenue in 2021, has made increasingly risky bets on bitcoin. Its initial tranche was purchased nearly two years ago with cash on hand, with around $250 million spent, including fees and expenses, while bitcoin traded at less than $12,000 per token.

MicroStrategy then began tapping into the debt market to fund additional purchases, issuing $650 million in convertible bonds in December 2020 and $500 million in bonds in June 2021. The proceeds of both were used to buy more bitcoin.

Michael Saylor, Chairman and CEO of MicroStrategy, speaks during the Bitcoin 2022 conference in Miami, Florida, US, on Thursday, April 7, 2022.

Eva Marie Ozkategi | Bloomberg | Getty Images

Recently, on March 29, a MicroStrategy subsidiary closed a $205 million loan — secured by bitcoin — with the goal of acquiring 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 in the spotlight as Bitcoin slides. In a MicroStrategy earnings call last week, CFO Fung Lu said that if the bitcoin price drops below $21,000 per token, the company could face a margin call, based on Silvergate’s loan-to-value (LTV) ratio terms.

He explained to me on May 3, “We took out the loan at 25% LTV. The margin call is happening at 50% LTV. So basically, bitcoin needs to halve, or about $21,000, before we have a margin call.” Profit call. “However, before it reaches 50%, we can contribute more bitcoin to the escrow package so that it never gets there, so we never get into a margin call situation.”

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