The ongoing crypto market crash is a big test for bitcoin evangelists like Michael Saylor.
Prices for the king of cryptocurrencies have plummeted from $69,044.77 in November to around $31,000 currently.
This fall, which is far from over, is about to cause damage for companies and investors, both professionals and individuals, who have bet on bitcoin. MicroStrategy (MSTR) - Get MicroStrategy Incorporated Class A Report, Saylor's company, holds 129,218 bitcoins, 4,827 of which were purchased in the first quarter at an average price of $44,645.
In all, MicroStrategy has spent just over $3.965 billion on its bitcoins. After soaring during crypto's meteoric rise last November, the company's bitcoin holdings are now worth $4.10 billion, according to Bitcoin Treasuries. In other words, Saylor's bet in bitcoin is about to go wrong.
MicroStrategy implemented its bitcoin strategy in the third quarter of 2020, becoming the first established company to add digital currency to its balance sheet. One of the consequences of this decision is that the action of the group evolves almost in parallel with the prices of bitcoin. When bitcoin goes down, MicroStrategy stock goes down. When the bitcoin rises, MicroStrategy does the same.
Since the start of the year, MicroStrategy shares have fallen 58.1%, while bitcoin has suffered its longest correction since 2017.
A Huge Bitcoin-Backed Loan
The company's first-quarter results were impacted by an impairment charge of $170.1 million, due to bitcoin. MicroStrategy had to depreciate the value of its bitcoin holdings to better reflect changing prices. Overall, the company has booked a total impairment charge of $1.1 billion related to its bitcoin holdings.
But that didn't shake Saylor's belief in bitcoin.
"To reiterate our strategy, we seek to acquire and hold Bitcoin long term," Phong Le, president and chief financial officer, said during the earnings' call. "We view our bitcoin holdings as long-term holdings and we do not currently plan to engage in sales of bitcoin."
However, bitcoin critics and skeptics have taken advantage of the fresh price drop to question the impact it is having on MicroStrategy, which recently raised $205 million as an interest-only loan for a term of three years, which is collateralized by bitcoin, from Silvergate Bank, a subsidiary of Silvergate Capital Corporation (SI) - Get Silvergate Capital Corp. Class A Report.
"MicroStrategy has a $205M term loan and needs to maintain $410M as collateral," Saylor wrote on Twitter on May 10. "$MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral," the billionaire added with a link to slides of the first quarter earnings' presentation.
"#HODL," he concluded, referring to a popular term among crypto enthusiasts which means hold on for dear life. HODL is similar to the investment strategy of buy and hold. Basically the billionaire is not worried about falling bitcoin prices.
He was praised by other crypto evangelists like bitcoin investor and influencer Anthony Pompliano.
"Michael “Diamond Hands” Saylor 👊🏼," Pompliano commented.
"Nothing to fear here," another Twitter user commented. "You’ll never see sub 20k #BTC ever again."
"Bitcoin price won't falls below $3,562 so there's no way MicroStrategy would be required to post more collateral. So those that are speculating about MicroStrategy having a margin call should rest, nothing like that is happening," another user added.