Shares of MicroStrategy tumbled 20 percent on Wednesday as investors fretted over what a brutal selloff in Bitcoin and the collapse of Sam Bankman-Fried’s crypto empire would mean for the software company’s finances.
The stock hit its lowest level in five month and so far it has decreased by more than a third on a three-day losing streak. That came amid the market turmoil after Binance backed out of its plans to acquire rival FTX’s non-US unit, with bitcoin falling 15% today after a 13% drop on Tuesday. It’s trading below $16,000 for the first time since November 2020.
MicroStrategy, a maker of business-intelligence software, disclosed last month that it held 130,000 bitcoins, which were acquired at a total cost of around $3.98 billion and an average purchase price of approximately $30,639 apiece.
With bitcoin currently trading at $19,138, MicroStrategy’s crypto stash would now be worth just over $1.99 billion. That translates to an unrealized loss of more than $2 billion.
MicroStrategy turned to bitcoin in 2020 as a hedge against inflation. The analytics software maker, run by bitcoin bull Michael Saylor, has taken advantage of any price drop in Bitcoin to continue beefing up its investment in the world’s most-traded cryptocurrency.
This strategy, however, turned out to be a risky gamble, with Bitcoin now moving in lockstep with other cryptocurrencies plunging amid fears of a prolonged ”crypto winter.” The question now is if this slide triggers a margin call that would force Saylor’s business intelligence firm to sell part of its holdings.
However, Microstrategy CEO, who expects the price of bitcoin to hit $6 million, said that the company will never sell its bitcoin holdings. The executive also revealed that he personally owns 17,732 bitcoins, noting that the primary cryptocurrency is “unstoppable” and will replace gold.
The company was looking for new ways to generate yield on its massive crypto trove after its subsidiary raised $205 million via an interest-only term loan due 2025. Offered by the crypto-friendly bank Silvergate Capital, the fiat money was granted against a bitcoin holding worth around $820 million, which represents 12% of MicroStrategy’s total crypto holding. With 19,466 BTC held by the subsidiary pledged as collateral, the firm was looking to put its 95,643 “unencumbered” bitcoins to use in exchange for juicy yields.
