The largest Bitcoin owner is facing a calculation – Quartz

MicroStrategy is known for owning more Bitcoin than any other publicly traded company. As of June 14, the Virginia-based business intelligence firm owns 129,218 bitcoins, two and a half times more than Tesla, the next largest bitcoin holder. That bitcoin is now worth about $2.9 billion, less than half the roughly $6 billion it was worth just two months ago.

Michael Saylor, President of MicroStrategy, believes so deeply in the promise of a primitive cryptocurrency that the company secured a $205 million loan from Silvergate Bank to purchase $190 million worth of bitcoin in April. But since then, the cryptocurrency market, which was already declining, has fallen into a free fall.

“Bitcoin needs to be halved to around $21,000 before we have a margin call,” Fung Lee, head of MicroStrategy, said in May during an earnings call. But this is exactly what happened. In the past 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 Bitcoin staking and may now have to post more collateral on its loan.

Under the terms of MicroStrategy’s loan agreement with Silvergate Bank, a margin call can be triggered if bitcoin drops below $21,000 per coin – which may already have happened, depending on your data source. CoinGecko recorded the lowest price for bitcoin at $21,046.95 around 10 PM ET on June 13, but Bloomberg reported the lowest at $20,824.

MicroStrategy did not respond to a request for comment and a Silvergate Bank spokesperson declined to comment for this story.

While it’s unclear whether or not margin call will occur, MicroStrategy’s response to the bitcoin slump could herald how a broader group of companies that have muddled their crypto finances, including Tesla, may navigate the “crypto winter.” continuous.

Bitcoin MicroStrategy betting

MicroStrategy, which was launched in 1989 and develops data-mining tools to help companies make decisions, bought the first 21,454 bitcoin for $250 million in August 2020, citing concerns that the US dollar could lose value due to the pandemic, government stimulus spending, and a lack of surrounding political uncertainty. the scientist. “This investment reflects our belief that Bitcoin, as the world’s most popular cryptocurrency, is a trusted store of value and an attractive investment asset with the potential to appreciate more long-term value than holding cash,” Saylor wrote in a statement at the time.

MicroStrategy isn’t the only publicly traded company to bet on bitcoin. The payments company run by Jack Dorsey Block (then called Square) bought $50 million worth of bitcoin in October 2020 as a “hedge” against market downturns, and Elon Musk’s Tesla bought $1.5 billion worth of bitcoin by February 2021 to give itself “more flexibility, more diversification, and greater returns on our money,” according to a Securities and Exchange Commission filing.

But no other company has invested in cryptocurrency as aggressively as MicroStrategy. The company had bought more than $1 billion by the end of 2020, and after the price of Bitcoin soared above $50,000 for the first time in February 2021, it bought another $1 billion in one day. In a statement announcing the acquisition, Saylor said MicroStrategy has two equally important enterprise strategies: “Growing our enterprise analytics software business and acquiring and holding bitcoin.”

MicroStrategy has now spent more than $4 billion on bitcoin – more than double the company’s $1.7 billion market capitalization. Along the way, MicroStrategy has transformed itself from a mediocre software company into a way to trade stocks to speculate on the future value of bitcoin.

Unfortunately for MicroStrategy, it made most of its bitcoin purchases as the cryptocurrency markets approached their peak. In addition, institutional investors have piled into the cryptocurrency market, tying the fate of bitcoin to the trends prevailing in traditional financial markets; As a result, cryptocurrencies have turned into a poor hedge against inflation and market turmoil. As of June 14, MicroStrategy’s cryptocurrency crowd is worth about $1.1 billion less than what the company paid for it.

But even as Bitcoin fell, MicroStrategy continued to invest. CFO Fung Lu told the Wall Street Journal in January.

Will MicroStrategy Face a Margin Call?

This week, Saylor told the magazine he didn’t think a margin call would happen, but cautioned that “the company has a lot of extra collateral if we need to post more.” in Jun 14 TweetSaylor said MicroStrategy has anticipated volatility and “structured its balance sheet so that it can continue to #HODL through adversity.”

Mark Palmer, equity research analyst at financial services firm BTIG, told Reuters he did not see any circumstances in which MicroStrategy would need to sell any of its bitcoin holdings. Ballmer said that, if needed, MicroStrategy has enough “unlinked bitcoin” to post as collateral.

MicroStrategy’s bet on bitcoin, which previously helped the stock jump nearly 10 times its value between February 2020 and February 2021, is now down. The stock price is down 72% in the past six months, despite rising 1.5% on June 14 despite the specter of a margin call. In the long run, MicroStrategy’s fate appears to have more to do with the whims of bitcoin, an unregulated and highly volatile altcoin, than the company’s core business.

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