MicroStrategy’s bitcoin bet goes negative, resulting in a $330 million monetary loss.
MicroStrategy’s massive bitcoin bet has turned negative after the cryptocurrency’s price fell below the software company’s average purchase price. MicroStrategy and its subsidiaries currently own 129,218 bitcoins, which were purchased at an average price of $30,700. The current bitcoin price is around $28,200, resulting in a $330 million paper loss — though MicroStrategy has not realized the loss by selling any bitcoin.
MicroStrategy’s stock price has fallen sharply in recent days as a result of the broader market downturn. It closed at $168 on Wednesday, bringing its weekly loss to 45 percent.
After going all in on bitcoin, Microstrategy and its CEO Michael Saylor have become poster children for bitcoin enthusiasm. MicroStrategy first put bitcoin on its balance sheet in August 2020, when Saylor told The Block that bitcoin is a better asset for a treasury because it is designed to be deflationary.
“Gold is defective in the twenty-first century,” he declared at the time.
“It all comes down to one fundamental premise. It will fall by between 2% and 4% per year for the foreseeable future “one hundred years.” The problem with the dollar, according to Saylor, is monetary policy growth and inflation, which reduces purchasing power.
The Bitcoin bull
Saylor has remained bullish on bitcoin since then. For example, he recently tweeted: “One thing is more important than the others. #Bitcoin.”
MicroStrategy has also stated repeatedly that it will continue to buy bitcoin regardless of market movements because it has a long-term bet on the cryptocurrency. In an interview late last year, Saylor told The Block that the company has two strategies: the first is to expand its business software business, and the second is to “invest our excess cash flows in bitcoin, and we keep it for the long term.”
Debt-supported
Notably, MicroStrategy’s bitcoin bets have been financed with debt totaling more than $2 billion. To purchase the cryptocurrency, the company took out several convertible and secured loans.
Recently, MicroStrategy’s subsidiary MacroStrategy, which holds the majority of its bitcoins, obtained a $205 million bitcoin-collateralized term loan from Silvergate Bank for purposes including bitcoin acquisition.
Saylor appears unconcerned about bitcoin’s price drop. He tweeted earlier this week that MicroStrategy has 115,109 BTC to pledge and that the company “could post some other collateral” if the price of bitcoin falls below $3,562.
MicroStrategy is not the only company that has reported bitcoin losses.
Elon Musk’s Tesla and the cash-strapped country of El Salvador have both lost money on bitcoin bets as the crypto market has sputtered.
Saylor was asked for comment by The Block but had not responded by press time.
DISCLAIMER
The author’s or anyone else’s views or opinions expressed in this article are for informational purposes only and do not constitute financial, investment, or other advice. Investing in or trading in crypto assets carries a financial risk.
Originally published at https://mkt57.blogspot.com on May 12, 2022.
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