Will Microstrategy Liquidate Their Bitcoin Holdings If BTC Price Drops To $12K?
2022 has been disastrous for the crypto space. Once again, Bitcoin is witnessing one of the most severe crashes and has set a record as the fifth resource to witness the worst collapse in financial history. Bitcoin, which accounts for 41% of the cryptocurrency market, experienced lows not seen since the pandemic low two years ago.
When there is a crash of this magnitude, it is safe to predict that almost all crypto holders 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 holding company, MicroStrategy Inc. It is said to be sitting on unrealized losses from its acquisitions totaling $1.8 billion.
The Tysons Corner, Virginia-headquartered software company and its affiliates currently control about 130,000 Bitcoins, valued at about $2.2 billion at the time of writing. Each Bitcoin costs approximately $30,369. The total cost of Bitcoins purchased was close to $4 billion. The company is now $1.8 billion in the hole as a result.
MicroStrategy’s loss
Michael Saylor, executive chairman of the firm, had declared that the business will never sell its Bitcoin. The group is sitting on large paper losses as a result of their refusal to sell. In addition, the business incurred an impairment charge of $917.8 million after reporting a loss as a result of the fall in the price of bitcoin earlier this year.
Since Bitcoin is categorized by MicroStrategy as an intangible asset, any decrease 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 a $1 billion loss in August 2022, Saylor stepped down as CEO to concentrate on the company’s Bitcoin strategy. Since then, the business has spent an additional $6 million to purchase 301 Bitcoins in September 2022. Since then, the average price of Bitcoin has fallen by approximately 15%, which means they are making even bigger losses at the moment.
However, Michael Saylor insisted that compared to cash or gold, cryptocurrencies were less risky investments and would reap massive profits later.
No margin call?
Saylor countered 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 fell below $3,500, the business had enough Bitcoin to keep the debt secured.
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 self-managed commodity. .
He insists that regulators need to provide clearer instructions on how to register a digital security, a digital currency, a digital token and its digital exchange.
