In the past week, the price of the oldest cryptocurrency Bitcoin has fallen to its lowest level since the end of 2020. MicroStrategy stock is also being penalized as the company relies heavily on cyber and even recently took out a Bitcoin-backed loan. CEO Michael Saylor is sticking to his investment strategy.
–
• MicroStrategy with significant exposure to Bitcoin
• Price setbacks in Bitcoin give rise to rumors of crypto sales
• MicroStrategy CEO remains committed to Bitcoin
At $26,350.49, Bitcoin’s price last week marked its lowest level in more than a year, according to CoinMarketCap. The oldest cryptocurrency is currently trading a little higher again, but is still below the $30,000 mark (as of May 19, 2022). In the wake of the cyber currency, the MicroStrategy share also rushed down: The software company’s paper lost around 54 percent in value on the NASDAQ within just one month (as of the closing price on May 18, 2022).
The reason for this is the investment strategy of the company, whose CEO Michael Saylor is a well-known Bitcoin enthusiast. According to CNBC, in August 2020, MicroStrategy became the first established company to add digital currencies to its balance sheet. The company now holds around 129,218 bitcoins, which were purchased at an average price of $30,700 each, Saylor announced on Twitter in early April. Overall, MicroStrategy spent around $3.97 billion on its Bitcoin holdings.
MacroStrategy has purchased an additional 4,167 bitcoins for ~$190.5 million at an average price of ~$45,714 per #bitcoin. As of 4/4/22 MicroStrategy #hodls ~129,218 bitcoins acquired for ~$3.97 billion at an average price of ~$30,700 per bitcoin. $MSTRhttps://t.co/Z45OuJU5KI
– Michael Saylor⚡️ (@saylor) April 5, 2022
However, MicroStrategy doesn’t seem to have always had a good knack with catching the right time to buy. According to the tweet, another 4,167 bitcoins were purchased at the beginning of April at an average price of $45,714 – one of the highest price levels for the digital currency this year. With a current value of around 3.4 billion US dollars, MicroStrategy’s entire crypto position is currently also a negative business (as of May 19, 2022). According to “TheStreet”, the company has also had to make write-downs totaling $1.1 billion on its balance sheet due to the falling Bitcoin price, including $170.1 million in the first quarter of 2022.
Bitcoin-backed loan raises concerns among investors
According to “Yahoo Finance”, MicroStrategy investors are particularly concerned about a $205 million Bitcoin-secured loan that the company’s subsidiary MacroStrategy recently took out – in order to use the money to buy more Bitcoin. According to the US news site, the fall in the price of the cyber currency gave rise to a rumor that MicroStrategy had received a margin call and may have to sell Bitcoin to meet it.
However, as “CNBC” reports, MicroStrategy CFO Phong Le said when presenting the quarterly figures that a margin call should only be triggered if the Bitcoin price falls below $21,000. And CEO Saylor also tried via Twitter to calm the nerves of investors and was confident that his company’s Bitcoin holdings were absolutely sufficient to meet a possible margin call without having to sell part of the Bitcoins – even with more falling bitcoin prices.
MicroStrategy CEO reiterates his reputation as a bitcoin hodler
In a tweet, Saylor explained that MicroStrategy had to post $410 million in collateral for the loan. If the Bitcoin already deposited is no longer sufficient to cover this sum, there are 115,109 more previously unencumbered coins of the cryptocurrency that can be brought in. Only when the Bitcoin price falls below $3,562 will MicroStrategy’s Bitcoin holdings become insufficient. But then you have other collateral that you can fall back on, according to the CEO.
MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. $MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral. See slides 11-12 in Q1 2022 presentation. #HODLhttps://t.co/9WHsIB6Usx
– Michael Saylor⚡️ (@saylor) May 10, 2022
Saylor was implying that the price of bitcoin would have to go much, much lower than it is now before MicroStrategy would be forced to sell. He then ended his tweet with the hashtag “#HODL” – a meme signaling an attitude towards holding a cryptocurrency permanently. MicroStrategy CFO Phong Le had already confirmed this attitude when presenting the quarterly figures: “We see our Bitcoin holdings as a long-term investment and we are not planning to sell Bitcoin at the moment,” he said, according to “TheStreet”. So MicroStrategy doesn’t seem to be too concerned about the falling Bitcoin price – whether the drop in price will possibly even be used for further purchases should become apparent at the latest in the next quarterly balance sheet.
Editorial office finanzen.at
–
Image Source: ImageFlow/Shutterstock.com,3Dsculptor/Shutterstock.com,Carlos Amarillo/Shutterstock.com
