Microstrategy says its business model is built around two core strategies: buying and owning massive amounts of bitcoin and developing software, in that order.
It’s an excellent plan when the price of bitcoin is rising. CEO Michael Saylor, Lord of the Cyber Hornetssees no reason why a single token (of which his company owns at least 129,218, with a combined value of just over $4.1 billion)
Unfortunately, the world’s largest digital asset by market cap is down more than 14 percent in the last five days and is currently hovering around Microstrategy’s median price of $30,700.
As a result, the company’s shares have fallen 31 percent in a week. Its market cap has fallen to around $2.47 billion, well below the value of its bitcoin holdings.
#HODL is never easy.
— CZ Binance (@cz_binance) May 8, 2022
‘Impairment charges on digital assets’ totaled $170.1m in the first quarter of the year, contributing to a £130.8m net loss. And it could get worse.
Microstrategy bought $215 million worth of bitcoin in the first three months of the year, funded by a combination of “excess cash” and a small $205 million bitcoin-backed loan from Silvergate Bank that has to be repaid over the next three years.
Chief Financial Officer Phong Le told investors last week that Bitcoin falling below $21,000 would trigger a margin call on that loan, although he stressed that Microstrategy could always add more Bitcoin to the collateral package. That may still be a long way off, but Jay Hatfield, chief investment officer at Infrastructure Capital Management, expects Bitcoin to fall below $20,000 by the end of the year as the Fed shrinks its balance sheet.
Le may have put on a brave face (he twice stressed that Microstrategy is currently in a “quite comfortable position”), but the company admits that its “significant debt” and interest expense could have “important consequences,” including:
Limiting our ability to obtain additional funding to purchase additional bitcoins in the future
increasing our vulnerability to downturns in our business and to adverse economic and industry conditions generally
which puts us at a competitive disadvantage compared to our less leveraged competitors
Microstrategy’s total debt is $2.405 billion, according to the most recent regulatory filing. Annual interest expense, meanwhile, has risen to around $44 million, which is “about half” the company’s Ebitda from last year when “adjusting for bitcoin depreciation.”
so no reason to panic. . .
Microstrategy doubles – FTAV
Microstrategy triples – FTAV
Source: Financial Times
Source: Crypto News Austria