michael saylor bitcoin bet

The price of Bitcoin has slid below the closely-watched $20,000 support area and that spells trouble for some of the most prominent investors in this space including the founder of MicroStrategy, Michael Saylor, whose BTC bet has, thus far, led to severe losses for its business.

On June 29, Saylor’s company announced that it acquired $10 million more in BTC at an average price of $20,817 per coin. As a result, its BTC holdings grew to 129,699 tokens purchased at an aggregate price of $3.98 billion or $30,664 per coin.

As a result, MicroStrategy’s accumulated paper losses are standing at $1.39 billion. However, the company has just recognized $1.07 billion in impairment losses from its investments in digital assets according to its last quarterly report, meaning that Saylor’s enterprise is due to book another $300 million in losses in the next quarter if BTC prices remain near current levels.

Also read: Update on Bitcoin Treasuries – Tesla and MicroStrategy Lose Big

Back in the first quarter of 2022, MicroStrategy booked impairment losses of $170.09 million that resulted in a net loss of $169,960 for the firm. If operating results are similar to this period in the upcoming second quarter, chances are that those losses will grow exponentially due to the acknowledgment of this additional $300 million paper loss.

In addition, the company’s assets would shrink to around $3.3 billion as well and would significantly affect the firm’s shareholder’s equity, which would shrink to around $562 million.

Moreover, MicroStrategy has also been using a significant amount of cash to purchase more Bitcoin but lately it has managed to do so by using the proceeds from loans and convertible notes as the business is not producing that much cash to finance these purchases by itself.

Cash reserves by the end of this past quarter ended at $92.7 million while MicroStrategy produced net operating cash flows of $43.7 million.

For now, MicroStrategy’s solvency does not appear to be an issue as its nearest debt maturity is scheduled to occur in 2025. However, considering the small amount of cash the company is producing at the moment and its relatively weak balance sheet, any downturns in MicroStrategy’s core business that leads to negative cash flows could force the firm to liquidate some of its BTC holdings.

This is one scenario that has not been mentioned in the media but that may be concerning Michael Saylor considering that the odds of a global recession have been increasing lately.

Will Michael Saylor Take More Risks to Buy the Dip?

MicroStrategy’s revenues have been stalled for years at around $500 million. Meanwhile, excluding last quarter’s BTC-related impairment losses, the firm produced pre-tax losses of approximately $8 million. Hence, Saylor’s business alone cannot withstand further BTC investments unless it is willing to deploy some of its cash reserves – a decision that would put the firm’s feasibility at risk.

That said, the firm could also resort to guaranteed loans by using its BTC reserves to keep buying more coins in the future to take advantage of the current bear market. However, that would further reduce shareholder’s equity and would increase the cost of financing for the firm to the point that it may start generating a cash burn.

All things considered, Michael Saylor might have hit a wall in his efforts to keep increasing its firm’s BTC holdings. At this point, any of the scenarios cited above – a downturn in the company’s core business, taking on more debt to purchase more BTC, a sharper decline in the value of BTC, or using the firm’s small reserves to acquire more digital assets – could threaten the firm’s solvency and could force it to liquidate its BTC holdings at a real (not paper) loss.

With this in mind, supporters of MSTR’s ambitious strategy of HODLing Bitcoin should keep an eye on Saylor’s next steps to analyze how far he is willing to go in this bet.

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