Hello everyone and welcome to ZD Tech, ZDNet’s daily editorial podcast. My name is Guillaume Serriesand today I will explain to you why venerable software maker MicroStrategy is playing with fire with bitcoins.
MicroStrategy is a very respectable American company that publishes Business Intelligence software packages. And now, for its 33 years of existence, it could experience death or resurrection this year. And this is all about bitcoins. I explain to you.
Its founder, Michael Saylor, has believed for two years that the future is in bitcoin. To the point of having used part of the capital of his listed company to buy this highly volatile virtual currency. And not just a little!
In total, MicroStrategy holds about $4 billion in bitcoins
The man made his first bitcoin purchase on behalf of his company in August 2020. At the time, he scooped up 21,500 bitcoins during the time – $11,650.
Delighted with the continued appreciation of this currency, he did it again in the months that followed. What to date to have a wallet with more than 129,000 bitcoins, whose average purchase price is 30,700 dollars each.
In total, MicroStrategy holds around $4 billion in bitcoins. Enough to make it the first investor of this type, before Tesla, which would have 1 billion dollars in bitcoins in its reserves.
MicroStrategy’s stock has fallen 25% in recent hours
Yes, but here comes the disaster. Because yesterday Monday was a particularly dark day for cryptocurrencies, with an 8% drop in the value of bitcoin. Its price is now close to 30,000 dollars.
First consequence, the action of MicroStrategy has fallen by 25% in recent hours.
But there is much worse. Because yes, you will have understood it, the bowl of this beginning of the week erases all the profits that MicroStrategy hoped to achieve with its strategy of speculation on this virtual currency.
A margin reduced to 0
Will this cause Michael Saylor to change his posture? Well… nothing is less certain. Because last April, when the price of cryptocurrencies was already slumping greatly, the CEO of the company proudly announced to its shareholders that MicroStrategy intended to “pursue vigorously” its strategy of reserve assets by buying and holding ever more bitcoins.
At the time, MicroStrategy assured that its strategy of buying cryptocurrencies had enabled it to generate a potential profit margin of … 1.2 billion dollars.
A margin which is now reduced to… 0.
The company must therefore report for the quarter ending an operating loss of $ 178 million, largely due to accounting charges on its bitcoin holdings.
MicroStrategy, however, says it has enough cash from its software sales business to cover its debt obligations.
Nevertheless, investors could be increasingly nervous at the idea of Michael Saylor being stubborn. Especially since with rising rates, the company will face higher interest costs in the future.
But beyond the symptomatic case of MicroStrategy, how can this fall be explained?
Already, this is not a reversal. The price of bitcoin has been on a downward trend since last November, when its highest price took it to $64,400 per unit.
Then, all tech stock values are down, which has an impact on cryptocurrencies.
In addition, concerns about weak growth and a possible recession in the world mean that no one, it seems, wants to invest now in these currencies which are still very poorly regulated, if at all.
Finally, as we saw last week in another episode of ZD Tech, NFTs, the little cousins of cryptocurrencies, also based on blockchain technology, are also running out of steam.