MicroStrategy Might be the Biggest Bitcoin Hodler, But its Strategy is All Wrong
MicroStrategy’s Bitcoin accumulation is wrong, despite its goals to keep hoarding BTC tokens
MicroStrategy recently made its smallest Bitcoin purchase since its entry into the crypto market to accumulate Bitcoin on its balance sheet, a move that could indicate financial trouble for the enterprise software firm. In a September 19 SEC filing, the company founded by Bitcoin evangelist Michael Saylor disclosed that it purchased an additional US$6 million worth of Bitcoin (301 BTCs purchased at an average price of US$19,851) with its excess cash. The purchase brings MicroStrategy and its subsidiaries’ total Bitcoin holdings to over 130,000 BTCs, acquired at an aggregate purchase price of approximately US$3.98 billion and an average purchase price of approximately US$30,639 per token.
At the moment, the investment is not performing as expected, prompting observers to question the company’s digital strategy. Despite being the smallest purchase since the company began accumulating Bitcoin two years ago, MicroStrategy’s latest Bitcoin purchase is already in the red, as the price of Bitcoin has traded below US$19,000 since the disclosure. The company’s entire 130,000 BTC holding is also approximately 38% underwater, with a current value of approximately US$1.5 billion, implying that the company is incurring impairment losses in excess of US$1 billion. The company’s stock has not fared any better, and its revenue has remained flat for more than five quarters.
MicroStrategy is Determined to Continue Amassing Bitcoin
Despite its financial status, between MicroStrategy’s Bitcoin bet and widespread criticism from analysts who labeled the investment as reckless, the company is determined to continue purchasing Bitcoin. Earlier this month, the company filed with the Securities and Exchange Commission to sell up to US$500 million in stock to fund future Bitcoin purchases. Saylor’s role in the company was changed from CEO to Chairman last month to focus on engineering the Bitcoin accumulation. MicroStrategy is still one of the few companies that has adopted a Bitcoin standard, which has resulted in its frequent run-ins with regulators such as the SEC.
Regardless, Saylor continues to advocate for more businesses to adopt the Bitcoin standard, believing that the pioneer cryptocurrency is the only unavoidable non-sovereign store of value assets. If the crypto market continues on its current path, his conviction could be MicroStrategy’s undoing. Meanwhile, this trajectory does not appear to be changing anytime soon, as the crypto has consistently demonstrated a strong positive correlation with the stock market as governments fight inflation.
MicroStrategy, which was founded in 1989 and creates data mining tools to assist businesses in making decisions, paid US$250 million for its first 21,454 Bitcoins in August 2020, citing concerns that 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 appealing investment asset with greater long-term appreciation potential than cash.
MicroStrategy was not the only publicly traded company to make a Bitcoin bet. According to an SEC filing, Jack Dorsey’s payments company Block (then called Square) purchased US$50 million in bitcoin in October 2020 as a “hedge” against market downturns, and Elon Musk’s Tesla purchased US$1.5 billion worth of Bitcoin by February 2021 to give itself more flexibility to further diversify and maximize returns on our cash. However, no other company has invested as aggressively in cryptocurrencies as MicroStrategy. The company spent more than US$1 billion by the end of 2020 and then spent another US$1 billion in a single day after Bitcoin’s price surpassed US$50,000 for the first time in February 2021.