Michael Saylor, Chairman and Chief Executive Officer of MicroStrategy, first entered Bitcoin in 2020 when it decided to start adding cryptocurrencies to MicroStrategy’s balance sheet as part of its unorthodox financial management strategy. ..
Eva Marie Uzcategi | Bloomberg | Getty Images
have Once lost $ 6 billion Software entrepreneur Michael Saylor, in the midst of the dot-com bubble, is familiar with financial market volatility.
1999, MicroStrategySailor’s software company has exaggerated its earnings and admitted that it mistakenly reported its profits when it actually made a loss. This blunder has reduced the value of MicroStrategy’s stock market by more than $ 11 billion a day.
Now, more than 20 years later, MicroStrategy is once again questioning some of its accounting practices. This time around, it’s related to a $ 4 billion bet. Bitcoin..
The world’s largest cryptocurrency temporarily fell below $ 21,000 on Tuesday. This is an important level in the face of margin calls where investors fear that MicroStrategy will liquidate Bitcoin holdings.
When CNBC contacted me, MicroStrategy’s comments weren’t immediately available.
In a tweet on Tuesday, Sailor said MicroStrategy “built a balance sheet to anticipate volatility and overcome adversity to continue #HODL.” HODL is a cryptographic slang aimed at discouraging investors from selling.
Saylor first entered Bitcoin in 2020, when it decided to start adding cryptocurrencies to MicroStrategy’s balance sheet as part of its unorthodox financial management strategy.
His belief was common among cryptocurrency followers — Bitcoin provides a valuable store that is uncorrelated with traditional financial markets.
It turned out to be a dangerous gambling in digital currencies Currently moving in step with stocks Other assets plunging in fear of an aggressive interest rate hike cycle from the Federal Reserve Board.
Bitcoin’s price fell 10% on Tuesday to $ 20,843, expanding its brutal sellout and dragging it to a level not seen since December 2020. This follows the cryptocurrency lending company Celsius. Stopped withdrawal on MondayQuoted “extreme market conditions”.
MicroStrategy is betting billions of dollars on cryptocurrencies — to be exact, $ 3.97 billion. As of March 31, MicroStrategy had 129,218 Bitcoins, each purchased at an average price of $ 30,700, according to company filings.
With Bitcoin currently trading at $ 22,818, MicroStrategy’s cryptocurrency hiding place is worth just over $ 2.9 billion. This represents an unrealized loss of over $ 1 billion.
In addition to MicroStrategy issues, the company is currently facing a situation called “margin calls.” This is a situation where investors have to invest more money to avoid increased transaction losses with borrowed cash.
The company has a $ 205 million loan Silver gate, Cryptographic-focused banks, continue to buy Bitcoin. To secure the loan, MicroStrategy has posted some of the Bitcoin it holds in its books as collateral.
Silvergate did not immediately return the request for comment.
In May’s earnings announcement, MicroStrategy Chief Financial Officer Phong Le said that if Bitcoin falls below $ 21,000, it will be forced to clear more Bitcoin or sell some of its holdings. I explained that I could face a call. Collateral requirements.Bitcoin Temporarily below that level Tuesday.
“Bitcoin needs to be cut in half or about $ 21,000 before making a margin call,” Le said at the time. “But we can’t reach that because we can offer more Bitcoin to the collateral package before it reaches 50%.”
It’s not yet clear if MicroStrategy has promised more money to secure the loan.
In June, Sailor claimed that the company had enough Bitcoin to cover its collateral requirements. Cryptocurrencies will need to fall to $ 3,500 before they can come up with more collateral, he added.
MicroStrategy shares, which some consider to be a substitute for investing in Bitcoin, fell by more than 25% on Tuesday, with year-to-date losses of more than 70%. This is even worse than Bitcoin’s performance — the No. 1 digital coin has nearly halved in price since the beginning of 2022.