Bitcoin’s Biggest Corporate Backer Expects $285 Million Loss After Crypto Crash—But Wants To Raise $400 Million In Debt To Buy More

Forbes

Topline

After Bitcoin’s massive crash last month, business analytics company MicroStrategy, the cryptocurrency’s biggest corporate owner, warned Monday it expects to incur a loss of at least $284.5 million in the second quarter as a result of its bitcoin holdings, but the staunch bitcoin bull—helmed by billionaire CEO Michael Saylor—also announced it’s looking to raise more debt to double down on its volatile bitcoin investment.

At one point worth more than $5 billion, MicroStrategy’s bitcoin holdings are now worth less than … [+] $3.5 billion.

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Key Facts

In a Monday morning regulatory filing, Virginia-based MicroStrategy disclosed it expects to incur the impairment loss—effectively the current value of an asset minus its purchase price—in the quarter ending June 30, “based on the fluctuations in the market price of bitcoin.”

The company made no other disclosure in the filing, but in a press release Monday morning, it announced it’s looking to raise $400 million in secured notes due in 2028 from institutional investors.

The firm said it intends to use the net proceeds from the debt offering to acquire additional bitcoin.

Shares of MicroStrategy, roughly flat in premarket trading, have tumbled nearly 55% from a two-decade high in February—plunging even more than bitcoin, which is down roughly 43% from an April high.

With about 92,079 bitcoins on its balance sheet, MicroStrategy’s holdings at one point surged above $5 billion, but they’re now worth approximately $3.4 billion.

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Key Background

MicroStrategy’s stock has plunged since February, when bitcoin plummeted after Tesla CEO Elon Musk said on Twitter its prices seemed “a little high,” fueling concerns among experts that the token’s volatility makes it an unreliable store of value despite increased investments from corporations such as MicroStrategy, Tesla and billionaire Jack Dorsey’s Square. At the time, Saylor, who Forbes estimates is worth approximately $2 billion, said the company’s growing investment “reaffirms [the firm’s] belief that bitcoin, as the world’s most widely adopted cryptocurrency, can serve as a dependable store of value.” That same month, the company announced it used more than $1 billion in debt to buy bitcoin at an average price of $52,756 per token—40% above current prices of roughly $36,640.

Tangent

Accounting rules require corporations to treat bitcoin as an intangible asset, Jerry Klein, the managing partner of $9 billion advisory Treasury Partners, wrote in an email to Forbes last month. That means they “must write down the value if the price declines, but they can’t write up the value if the price appreciates.” Despite its recent crash, however, the price of bitcoin is still up more than 250% over the past year.

Chief Critic

“The recent volatility in bitcoin shows that companies cannot rely on cryptocurrencies as sound corporate cash investments,” says Klein. “Corporate investors get none of the sweets, but all of the indigestion by investing in bitcoin.”

Surprising Fact

MicroStrategy owns more bitcoin than any publicly traded company, but asset manager Grayscale owns a staggering 654,885 tokens—worth more than $24 billion.

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Further Reading

One Of Bitcoin’s Biggest Backers Just Spent $1 Billion Buying More (Forbes)

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Author: Jonathan Ponciano, Forbes Staff


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