Eva Marie Uzcategui | Bloomberg | Getty Images Having once lost $ 6 billion at the height of the dotcom bubble, software entrepreneur Michael Saylor is no stranger to financial market volatility. In 1999, MicroStrategy, the software company Saylor, admitted to overestimating its revenue and misreporting profit when it made a loss. The fiasco cut more than $ 11 billion from MicroStrategy’s market value in one day. Now, more than two decades later, MicroStrategy is once again facing questions about some of its accounting practices – this time over a $ 4 billion bitcoin bet. The world’s largest cryptocurrency fell just under $ 21,000 on Tuesday, a key level at which MicroStrategy would face a profit margin that investors fear could force the company to liquidate its bitcoin holdings. MicroStrategy was not immediately available for comment when CNBC contacted.
loss of $ 1 billion
Saylor first introduced bitcoin in 2020, when he decided to start adding cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox financial management strategy.
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His belief was common among cryptocurrency believers – that bitcoin provides a stock of value unrelated to traditional financial markets. This proved to be a risky bet, with digital currencies now at a dead end with stocks and other assets sinking amid fears of an aggressive interest rate hike by the Federal Reserve. The price of Bitcoin fell 10% to $ 20,843 on Tuesday, extending a brutal sell-off and dragging it deeper to levels not seen since December 2020. This comes after cryptocurrency lender Celsius cut its takeovers on Monday “Extreme market conditions”. MicroStrategy has bet billions on cryptocurrency – $ 3.97 billion, to be exact. As of March 31, MicroStrategy held 129,218 bitcoins, each bought at an average price of $ 30,700, according to the company. With bitcoin currently trading at $ 22,818, MicroStrategy’s encryption stock will now be worth just over $ 2.9 billion. This translates into an unrealized loss of more than $ 1 billion.
Margin call
To add to MicroStrategy’s troubles, the company is now facing what is known as a “margin call”, a situation where an investor has to commit more funds to avoid losses in a transaction that increases with borrowed cash. The company borrowed $ 205 million from Silvergate, a bank focused on cryptocurrencies, to continue the bitcoin spree. To secure the loan, MicroStrategy published part of the bitcoin it had in its books as collateral. Silvergate did not immediately request comment. In a profit call in May, MicroStrategy Chief Financial Officer Phong Le explained that if bitcoin fell below $ 21,000, he could face a call margin where he would be forced to buy more bitcoin – or sell some of his warehouses. – to meet collateral requirements. Bitcoin fell slightly below that level on Tuesday. “Bitcoin has to be cut in half or about $ 21,000 before we have a margin call,” Le said at the time. “So, before it reaches 50%, we could contribute more Bitcoin to the collateral, so that it never gets there.” It is not yet clear whether MicroStrategy has committed more funds to secure the loan. In June, Saylor insisted the company had more than enough bitcoin to meet its collateral requirements. The cryptocurrency will have to drop to $ 3,500 before it needs to find more collateral, he added. Shares of MicroStrategy, seen by some as a means of investing in bitcoin, fell more than 25% on Tuesday, raising losses from year to date to over 70%. This is even worse than the performance of bitcoin – the No. 1 digital currency has almost halved since the beginning of 2022. Saylor has not yet commented on the fall of bitcoin below $ 21,000. He posted a new profile picture on Twitter on Monday showing his face with a laser coming out of his eyes – a nod to a meme signaling up bitcoin behavior. A few hours later, Saylor wrote on Twitter: “In #Bitcoin We Trust”. ATTENTION: Encryption enthusiasts want to reshape the Internet with “Web3”. Here’s what that means
