Largest Corporate Bitcoin Holder Faces Judgment — Quartz

MicroStrategy is famous for owning more bitcoins than any other publicly traded company. As of June 14, the Virginia-based economic intelligence firm held 129,218 bitcoins, more than two and a half times more than Tesla, the second-largest bitcoin owner. That bitcoin is now worth around $2.9 billion, less than half of the roughly $6 billion it was worth just two months ago.

MicroStrategy chief Michael Saylor believes so deeply in the promise of paramount cryptocurrency that the company has taken a $205 million loan of Silvergate Bank to buy $190 million worth of bitcoins in April. But since then, the cryptocurrency market, which was already collapsing, went into free fall.

“Bitcoin needs to be halved to around $21,000 before we have a margin call,” MicroStrategy chairman Phong Les said in a May earnings call. But that’s exactly what happened. In the two months since MicroStrategy’s last bitcoin purchase, the cryptocurrency has lost more than half of its value. As of June 14, MicroStrategy had lost $1.1 billion on its bitcoin bet 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 could be triggered if bitcoin falls below $21,000 per coin, which your data source says may have already been do. The CoinGecko website bitcoin at low at $21,046.95 around 10 p.m. ET on June 13, but Bloomberg signaled the low 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 the margin call will happen, MicroStrategy’s response to the bitcoin slowdown could bode well for how a broader set of companies that have scrambled their finances with crypto, including including Tesla, will navigate the ongoing “crypto winter”.

MicroStrategy’s bitcoin bet

MicroStrategy, which was launched in 1989 and develops data mining tools to help companies make decisions, bought its first 21,454 bitcoins for $250 million in August 2020, citing concerns from the The US dollar would lose value due to the pandemic, government stimulus spending and political uncertainty around the world. “This investment reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a reliable store of value and an attractive investment asset with the potential for longer-term appreciation than holding bitcoins. ‘cash,” Saylor wrote in a statement at the time.

MicroStrategy wasn’t the only publicly traded company betting on bitcoin. Payments company Block (then called Square) led by Jack Dorsey bought $50 million worth of bitcoins in October 2020 as a “hedge” against market declinesand Elon Musk’s Tesla bought $1.5 billion worth of bitcoin by February 2021 to give itself “more flexibility to further diversify and maximize returns from our cash,” according to a filing with the SEC.

But no other company has invested in cryptocurrencies as aggressively as MicroStrategy. The company bought over $1 billion at the end of 2020, and then, after the price of bitcoin first surpassed $50,000 in February 2021, it bought another. $1 billion in a single day. In a statement announcing the purchase, Saylor said MicroStrategy had two business strategies of similar importance: “to grow our business analytics software business and acquire and hold bitcoins.”

MicroStrategy has now spent over $4 billion on bitcoin, more than double the company’s investment. Market cap of $1.7 billion. Along the way, MicroStrategy transformed from a middleware software company into a stock market vehicle speculate on the future value of bitcoin.

Unfortunately for MicroStrategy, it made the bulk of its bitcoin purchases as the crypto markets approached their peak. Additionally, institutional investors have piled into the crypto market, linking the fate of bitcoin to trends in traditional financial markets; as a result, cryptocurrencies have proven to be a poor hedge against inflation and market turbulence. As of June 14, MicroStrategy’s crypto horde was worth about $1.1 billion less than the company paid for it.

But even though bitcoin has fallen, MicroStrategy has continued to invest. “Our strategy with bitcoin has been buy and hold, so to the extent that we have excess cash flow or find other ways to raise cash, we continue to put it into bitcoin,” CFO Phong Le told the Wall Street Journal in January.

Will MicroStrategy face a margin call?

This week Saylor said the newspaper he doesn’t think a margin call will happen, but cautioned that “the company has plenty of additional safeguards in place if we need to release more.” In a tweet from June 14Saylor said MicroStrategy anticipated volatility and “structured its balance sheet so it could continue to #HODL through adversity.”

Mark Palmer, equity research analyst at financial services firm BTIG, told Reuters he sees “no circumstances under which MicroStrategy will have to sell any of its bitcoin holdings.” Palmer said that if needed, MicroStrategy has enough “unencumbered bitcoin” to post as additional warranty.

MicroStrategy’s bitcoin bet, which once helped the stock soar nearly 10x its value between Feb 2020 and Feb 2021, has now dragged it down. The stock price has fallen 72% in the past six months, although it was up 1.5% on June 14 despite the specter of a margin call. In the long term, it seems MicroStrategy’s fate seems more tied to the vagaries of bitcoin, an unregulated and highly volatile alternative currency, than to the company’s core business.

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