MicroStrategy Inc., BTC’s largest holding company, has reportedly accumulated $ 1.8 billion in unrealized losses from its purchases.
The American company and its subsidiaries hold around 130,000 bitcoins, worth around $ 2.2 billion at current prices. These BTCs were bought at an aggregate price of nearly $ 4 billion, with each coin costing around $ 30,369. The company is therefore in the red of up to $ 1.8 billion.
Can MicroStrategy continue to work?
Executive Chairman Michael Saylor previously said the company would never sell its BTCs. This refusal to sell means that the company faces significant theoretical losses. Separately, the company posted a $ 917.8 million devaluation after reporting losses related to Bitcoin’s price drop earlier this year.
MicroStrategy classifies Bitcoin as an intangible asset, which means the company must permanently acknowledge any decline in the asset’s value. If he chooses to sell his bitcoins, he must report capital gains tax to the Internal Revenue Service.
Saylor stepped down as CEO of MicroStrategy in August 2022 to focus on the company’s Bitcoin strategy after posting $ 1 billion in losses. The company has since spent $ 6 million in excess cash to buy 301 bitcoins in September 2022. Its overall purchase of 301 coins is already below break-even point, as the average asset price has since fallen by almost 15%.
The company started buying bitcoin in 2020. CEO Michael Saylor was adamant: cryptocurrency is a less risky asset than cash or gold.
“In an expansive monetary environment, you have to look for scarce assets,” Saylor told Bloomberg in February 2021. “The rarest asset in the world is Bitcoin. It’s digital gold.”
Signs of margin calls in sight?
In June 2022, Saylor denied that MicroStrategy had received a margin call for a $ 205 million BTC-backed loan from Silvergate Capital. In effect, a margin call occurs when an investor borrows money to make transactions that represent a multiple of an initial amount called margin. When the margin value falls below a certain threshold, the investor has to pay additional funds to keep the deal open.
Saylor said the company has enough bitcoin to hold the secured loan unless the asset’s price falls below $ 3,500.
The need for clear rules
During an interview with CNBC on November 10, 2022, Saylor said that the very recent fall in FTX is both a boon for Bitcoin and a disaster for the cryptocurrency industry. In fact, unlike tokens on exchanges, BTC is a commodity that can be self-guarded, he pointed out.
He says regulators need to provide clear guidelines on how to “register a digital security, a digital currency, a digital token and your digital exchange.”
At $ 16,856 per BTC, the current asset price remains higher than MicroStrategy’s first bitcoin purchase of 2020.
In fact, at the time, the company bought 21,454 BTC at around $ 11,652 per Bitcoin.
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