Billionaire Michael Saylor and his company MicroStrategy (MSTR) – Get MicroStrategy Incorporated Report are at the center of attention with the fall of Bitcoin.
Saylor is one of the most famous Bitcoin evangelists. He praises the merits of the king of the cryptocurrencies almost daily on his Twitter account followed by more than 2.5 million people.
How much has he lost since the cryptocurrency market crashed? This is the question that is on everyone’s lips.
Before we even look at the numbers, it’s safe to say that Saylor and MicroStrategy are among the biggest losers in Bitcoin’s return to earth as they adopted a cryptocurrency investment strategy in 2020.
This bet has just turned sour.
MicroStrategy holds 129,218 bitcoins, 4,827 of which were purchased in the first quarter at an average price of $44,645.
An Asset-Impairment Charge?
In all, the firm has spent some $3.97 billion on its bitcoins. After the company’s bitcoin holdings soared during crypto’s meteoric rise last November, they’re now valued at $2,753 billion, according to Bitcoin Treasuries.
In other words, Saylor’s bet on bitcoin now presents a loss of at least $1.2 billion. This means the company should record an asset-impairment charge related to its Bitcoin investments.
“When @MicroStrategy adopted a #Bitcoin Strategy, it anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity,” Saylor posted on Twitter on June 14.
HODL, a popular term among crypto enthusiasts, stands for hold on for dear life. It’s similar to the investment strategy of buy and hold.
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Saylor’s tweet is accompanied by a link to another tweet posted in May in which the billionaire was already trying to reassure the markets by explaining that MicroStrategy had enough collateral to pledge to meet a Bitcoin loan requirements from Silvergate Bank.
MicroStrategy implemented its Bitcoin strategy in the third quarter of 2020, becoming the first established company to add digital currency to its balance sheet. One of the consequences of this decision is that the group’s stock performance substantially reflects the direction of Bitcoin’s price, up or down.
The company’s first-quarter results reflected an impairment charge of $170.1 million due to Bitcoin. MicroStrategy had to reduce the value of its Bitcoin holdings to better reflect changing prices. Overall, the company has booked a total impairment charge of $1.1 billion related to its Bitcoin holdings.
No Margin Call on The Bitcoin Loan
Bitcoin critics have taken advantage of the crash to question the impact it is having on MicroStrategy, which, in March, raised $205 million as an interest-only loan for a term of three years, which is collateralized by bitcoin, from Silvergate Bank, a subsidiary of Silvergate Capital Corporation (SI) – Get Silvergate Capital Corporation Class A Report.
“MicroStrategy has a $205M term loan and needs to maintain $410M as collateral,” Saylor wrote on Twitter on May 10. “$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,” the billionaire added with a link to slides of the first quarter earnings’ presentation.
During a May conference call, the company said that the price of Bitcoin would have to fall to around $21,000 before a margin call could be made on this $205 million loan. But MicroStrategy also said it could provide more collateral to prevent the call from being triggered.
Bitcoin is currently trading at $21,006.83 and has even fallen to around $20,000, according to data firm CoinGecko.
But in an email to Bloomberg, Saylor said there will be no margin call on the Bitcoin loan.
“As long as the Silvergate loan remains collateralized with an LTV less than 50%, there is no margin call,” the billionaire wrote, referring to loan-to-value metrics. “We manage accordingly.”
MicroStrategy shares have lost more than 71% since January.