Will Microstrategy Liquidate its Bitcoin Holdings if BTC Price Drops To $12K?

2022 has been disastrous for the crypto space. Yet again, Bitcoin is witnessing one of the most severe crashes and has marked a record as the fifth asset to witness the worst collapse in the history of finance. Bitcoin, which accounts for 41% of the cryptocurrency market, experienced lows that had not been seen since the pandemic’s low two years ago.

When there’s a crash of this magnitude, it’s safe to anticipate that nearly all crypto holders are suffering losses- especially people who joined the game later on. Not only individuals but even firms have also been hit hard. This includes the biggest Bitcoin-owning company, MicroStrategy Inc. It is said to be sitting on unrealized losses from its acquisitions totaling $1.8 billion.

The software firm with headquarters in Tysons Corner, Virginia, and its affiliates, currently control about 130,000 Bitcoin, valued at about $2.2 billion at the time of writing. Each Bitcoin cost approximately $30,369. The total cost of the Bitcoins purchased was close to $4 billion. The corporation is now $1.8 billion in the hole as a result.

MicroStrategy’s Losses

Michael Saylor, the executive chairman of the firm, had declared that the business will never sell its Bitcoin. The corporation is sitting on large paper losses as a result of its refusal to sell. Additionally, the business incurred an impairment charge of $917.8 million after reporting losses resulting from the fall in the price of bitcoin earlier this year.

Since Bitcoin is categorized by MicroStrategy as an intangible asset, any decline in its value must be permanently recorded as a loss. If it decides to sell its Bitcoin, it must notify the Internal Revenue Service of any capital gains.

After MicroStrategy reported $1 billion in losses in August 2022, Saylor resigned as CEO to concentrate on the business’s Bitcoin strategy. Since then, the business spent an extra $6 million buying 301 Bitcoins in September 2022. Since then, the average price of Bitcoin has dropped by roughly 15%, meaning that they’re undergoing even larger losses at the moment. 

Michael Saylor, however, insisted that compared to cash or gold, cryptocurrencies were less risky investments and shall reap massive profits later. 

No Margin Call?

Saylor refuted that MicroStrategy had received a margin call on a $205 million loan with Silvergate Capital that was secured by bitcoin in June 2022. A margin call occurs when an investor borrows money to trade that is a multiple of a predetermined amount known as a margin. The investor must contribute more money to maintain the open position when the value of the margin falls below a certain level.

Saylor stated that unless the price of Bitcoin dropped below $3,500, the business had enough Bitcoin to keep the debt collateralized.

Urgent Need For Crypto Regulations

Saylor stated that the current collapse of FTX is both beneficial for Bitcoin and disastrous for the cryptocurrency industry in an interview with CNBC on November 10, 2022. According to him, unlike exchange-traded tokens, Bitcoin is a commodity that can be self-managed.

He insists that the regulators must provide clearer instructions on how to register a digital security, a digital currency, a digital token, and one’s digital exchange.