MicroStrategy’s bitcoin bet pays off, turns profit of $160 million

Michael Saylor, the co-founder of MicroStrategy Inc., can breathe a sigh of relief as his multibillion-dollar wager on Bitcoin is back in the black. After experiencing massive losses, Bitcoin’s recent rally to almost $31,000 on Monday has made MicroStrategy’s holdings profitable once more.

As of the last update, MicroStrategy’s average acquisition price for its Bitcoin stash, amounting to $4.68 billion, was at $29,582. This extensive hoard of the primary cryptocurrency witnessed a bleak phase in 2022 when Bitcoin plummeted 80% from its peak in November 2021. However, the rumors around the approval of a Bitcoin ETF and the impending halving event acted as the needed tailwinds, nearly doubling the digital currency’s price this year.

The Virginia-based business intelligence firm has sold Bitcoin only once – a disposal of 708 bitcoins in December 2022. In contrast, the firm’s most recent acquisition was just ahead of September 24 this year, where they amassed 5,445 bitcoins for close to $150 million. This acquisition brings the company’s total holdings to 158,245 bitcoins with an overall investment of about $4.68 billion.

With Bitcoin’s current price hovering around $30,650, MicroStrategy is enjoying a profit of approximately $1,000 on each coin, translating to a total gain of around $160 million.

Moreover, MicroStrategy is likely expanding its Bitcoin portfolio even further. An announcement in August hinted at the possibility of raising up to $750 million through a stock sale, a portion of which might be allocated for additional Bitcoin purchases.

However, MicroStrategy’s aggressive Bitcoin accumulation strategy has not been without its fair share of volatility and risk. While the firm’s Bitcoin holdings were valued at a staggering $5.9 billion at the close of Q1 2022, the figure dropped by 22% later in the year. The company’s stock price has also seen wild oscillations, with the price soaring from $123 in July 2020 to a high of $1,272 in February 2021, only to adjust to around $377 as of Monday’s session.

MicroStrategy (MSTR) is set to change how it reports its bitcoin (BTC) holdings each quarter, as the Financial Accounting Standards Board (FASB) has voted to alter the crypto reporting rules.

Overall, the move is seen as a positive step for the crypto market and will provide investors with more transparency. Currently, cryptocurrencies are treated as intangible assets, resulting in conservative accounting that dings company earnings when crypto prices drop.

The new changes will allow MicroStrategy to avoid recognizing impairment losses if the price of bitcoin drops during a quarter. Since initiating its bitcoin acquisition strategy in August 2020, the Virginia-based business intelligence firm has reported $2.23 billion in cumulative impairment losses. The largest impairment loss of $917.8 million was recorded in the second quarter of 2022.