Will Microstrategy liquidate its Bitcoin holdings if the price of BTC drops to $12,000?
2022 has been disastrous for the crypto space. Bitcoin is witnessing one of the most severe crashes yet again and set a record as the fifth asset to witness the worst crash in financial history. Bitcoin, which makes up 41% of the cryptocurrency market, saw lows not seen since the pandemic low two years ago.
When there is a crash of this magnitude, it is safe to anticipate that almost all crypto holders will suffer losses, especially people who joined the game later. Not only individuals, but even businesses have also been hit hard. This includes the largest Bitcoin-owning company, MicroStrategy Inc. It is said to be sitting on unrealized losses from its acquisitions totaling $1.8 billion.
The Tysons Corner, Va.-headquartered software company and its subsidiaries currently control around 130,000 Bitcoin, valued at around $2.2 billion at the time of writing. Each bitcoin costs around $30,369. The total cost of Bitcoins purchased was nearly $4 billion. As a result, the company now finds itself with $1.8 billion in the hole.
Michael Saylor, the company’s executive chairman, had said that the company would never sell its Bitcoin. The company is sitting on large losses on paper due to its refusal to sell. Additionally, the company incurred a $917.8 million impairment charge after reporting losses from the crash in the price of bitcoin earlier this year.
Since Bitcoin is classified by MicroStrategy as an intangible asset, any decline in its value must be permanently recorded as a loss. If he decides to sell his Bitcoin, he must inform the Internal Revenue Service of any capital gain.
After MicroStrategy reported losses of $1 billion in August 2022, Saylor stepped down as CEO to focus on the company’s Bitcoin strategy. Since then, the company has spent another $6 million to buy 301 Bitcoins in September 2022. Since then, the average price of Bitcoin has fallen by around 15%, which means that it suffers even greater losses in this moment.
Michael Saylor, however, insisted that compared to silver or gold, cryptocurrencies were less risky investments and should reap massive profits later.
No margin call?
Saylor refuted that MicroStrategy received a margin call on a $205 million loan with Silvergate Capital that was backed by bitcoin in June 2022. A margin call occurs when an investor borrows money to trade which is a multiple of a predetermined amount called margin. The investor has to contribute more money to keep the position open when the margin value falls below a certain level.
Saylor said that unless the Bitcoin price falls below $3,500, the company has enough Bitcoin to secure the debt.
Urgent need for crypto regulation
Saylor said that the current FTX collapse is both good for Bitcoin and disastrous for the cryptocurrency industry in an interview with CNBC on Nov. 10, 2022. According to him, unlike exchange-traded tokens, Bitcoin is a commodity that can be self-managed. .
He insists that regulators must provide clearer instructions on how to register a digital security, digital currency, digital token and its digital exchange.