Michael Saylor, the billionaire crypto bull and head of the data analytics firm MicroStrategy, keeps buying Bitcoin at higher prices, pushing up the average purchase price of all his Bitcoin. This begs the question: at what point will he blow up and fold on his massive gamble?
The largest independent publicly-traded business intelligence company, MicroStrategy now deals in Bitcoin, business software and data analytics.
The value of the company’s Bitcoin stash already exceeds the market value of the company, whose core business helps customers such as Target make decisions like how much product to put on shelves. But Saylor said he is committed to buying more.
This makes it easier for the company’s total investment to go underwater. Saylor has borrowed billions of dollars to buy Bitcoin and turn the company into a Bitcoin company, leveraged with debt and a $1 billion stock offering.
The company started accumulating cryptocurrency in August 2020 and says it now holds about 125,051 Bitcoins, at a cost of almost $3.8 billion. That means MicroStrategy’s Bitcoins were bought at an average price of $30,200 per coin.
MicroStrategy’s most recent purchase was about 660 bitcoins for $25 million in cash, or $37,865 per coin, between Dec. 30 and Jan. 31. The Virginia-based firm now owns more Bitcoin than any other corporation in the world.
The Securities and Exchange Commission has rejected MicroStrategy’s crypto accounting practices and how it accounts on financial reports for its massive Bitcoin stash and losses. In December, the SEC asked the company to stop adjusting its profits to exclude accounting losses related to Bitcoin’s price decrease.
Bitcoin’s share price is at $39,624 as of this writing, up from a $36,388.14 low in the last 24 hours. Just two weeks ago on Jan. 24, Bitcoin was trading at a six-month low of $33,503, down more than 50 percent from an all-time high near $69,000 in November, 2021. The drop in price has been attributed in part to the Federal Reserve declaring an end to coronavirus stimulus.
If the price of Bitcoin fell significantly below MicroStrategy’s average cost for an extended period, it could bankrupt the company as it would not have enough assets to meet its debt obligations, according to Business Insider.
Saylor insists he’s not giving up on his multibillion-dollar bet for MicroStrategy. “Never. No. We’re not sellers. We’re only acquiring and holding bitcoin. That’s our strategy,” Saylor told Bloomberg.
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After Saylor announced that MicroStrategy’s cash management plan centered around buying Bitcoin, the company’s stock gained more than 900 percent. However, tapping debt and equity-linked markets to fund the stockpile addiction has shown diminishing rewards lately. Shares of MicroStrategy underperformed Bitcoin during the crypto selloff as the appetite for risk appetite declined. However, MicroStrategy’s Bitcoin stake remains in the black due to early acquisitions, according to filings.
Saylor said Bitcoin’s price decline doesn’t make him nervous. “The best defense against inflation is a Bitcoin standard. So I don’t really think we could do anything better to position our company in an inflationary environment than to convert our balance sheet to Bitcoin,” he said.
Going into the covid-19 pandemic, Saylor was worried about how central banks were printing money and whether that could lead to inflation. Buying Bitcoin was an alternative to stock buybacks and acquisitions as inflation eroded the value of the company’s cash, Saylor said. “I had seen the demise of 99% of my competitors, and I could see where we were headed if we stuck with the status quo. We would have to either adopt a Bitcoin strategy or sell the company. And we elected to pursue Bitcoin.”
Image credit: Michael Saylor, Keynote MicroStrategy World Barcelona 2013, Flickr, https://www.flickr.com/photos/microstrategy/9244288125