A publicly traded bitcoin whale's glaring (paper) loss
An enterprise software company that invested $4 billion in bitcoin will on Tuesday share publicly how much damage the crypto bear market has done to its balance sheet.
Why it matters: MicroStrategy is a bitcoin whale, holding the most of any public company. So bitcoin enthusiasts big and small will be keenly interested in what cofounder and CEO Michael Saylor will say when the company reports earnings for the second quarter.
- Saylor is something of a Bitcoin influencer and is credited for popularizing holding bitcoin on company balance-sheets.
Quick take: Many will make hay about the company's bitcoin bet, and how it has gone awry. (MicroStrategy has, on average, paid $30,664 per bitcoin, far more than where prices are now.)
- Meanwhile, the company will account for its stockpile of 129,699 bitcoins at its lowest price in that time period, exacerbating the pain on paper.
- The price of the world's largest digital asset fell roughly 60% from peak to trough in the months of April to June.
Yes, but: The drag on earnings is a balance-sheet exercise in imaginary pain, because those losses are theoretical until the company changes its buy-and-hold strategy.
What they're saying: "Frankly, it doesn’t really matter. It has no impact on the inherent value of the company," Mark Palmer, research analyst at BTIG, tells Axios.
- What many pros care about is how the company will continue buying the digital asset.
The big picture: MicroStrategy's stock price has become closely tied to the price of bitcoin, so outside of bitcoin prices rising, the company will have to figure out a way to continue funding its buy-and-hold strategy, Palmer said.
Context: MicroStrategy has reached for every financial lever available to the public company to fund the buy-and-hold bitcoin strategy it announced in August 2020.
- The company sold its stock, issued corporate debt and convertible bonds, plus took out a loan backed by some of its bitcoin... to raise cash to buy more bitcoin.
The other side: Jefferies analyst Brent Thill, however, recently downgraded MicroStrategy's stock to an "underperform" from a previous hold rating, saying the company was sitting on a "$1 billion unrealized loss."
Of note: Now that the market and crypto environment has turned negative together, analysts and traders are watching to see whether MicroStrategy will sell its shares at very low prices to keep buying bitcoin related to a billion-dollar shelf registration it set up June 2021.
What's next: MicroStrategy's conference call is expected on August 2 at 5 pm ET.
The bottom line: MicroStrategy's stock is an imperfect play on bitcoin much like the world's largest bitcoin fund Grayscale Bitcoin Trust.