ZD Tech: Bitcoin, why MicroStrategy is playing with fire

Hello everyone, and welcome to ZD Tech, ZDNet’s daily editorial podcast. My name is Guillaume Serriesand today I will tell you why the venerable software maker MicroStrategy is playing with bitcoins.

MicroStrategy is a reputable American company that publishes Business Intelligence software packages. And now, during its 33 years of existence, this year it could experience death or resurrection. And it’s all about bitcoins. I’ll tell you.

Its founder, Michael Saylor, has believed for two years that the future lies in bitcoin. To the point that he used part of the capital of his listed company to buy this highly volatile virtual currency. And not just a little!

In total, MicroStrategy has about $ 4 billion in bitcoins

The man made his first bitcoin purchase on behalf of his company in August 2020. At that time, he earned 21,500 bitcoins over time: $ 11,650.

Delighted at the continued appreciation of this currency, he did so again in the following months. So far we have a portfolio of more than 129,000 bitcoins, the average purchase price of which is $ 30,700 each.

In total, MicroStrategy has about $ 4 billion in bitcoins. Enough to make him the first investor of its kind, before Tesla, which would have $ 1 billion in bitcoins in its reserves.

Shares of MicroStrategy have fallen 25% in the last few hours

Yes, but here comes the disaster. Because yesterday was a particularly dark day for cryptocurrencies, with a 8% drop in the value of bitcoin. Its price is now approaching $ 30,000.

As a result, MicroStrategy’s stock has fallen 25% in the last few hours.

But there is much worse. Because yes, you get the idea, this week’s bowl erases all the benefits that MicroStrategy hoped to achieve with its virtual currency speculation strategy.

A margin reduced to 0

Will this change Michael Saylor’s position? Well … nothing is less certain. Because last April, when the price of cryptocurrencies was already falling sharply, the company’s CEO proudly announced to its shareholders that MicroStrategy intended to “forcefully pursue” its reserve asset strategy by buying and maintaining more and more bitcoins.

At the time, MicroStrategy claimed that its cryptocurrency buying strategy had enabled it to generate a potential profit margin of … $ 1.2 billion.

A margin that is now reduced to … 0.

Therefore, the company has to report for the quarter ending an operating loss of $ 178 million, largely due to the accounting charges for its holdings in bitcoins.

MicroStrategy, however, says it has enough cash from its software sales business to cover its debt obligations.

However, investors may be increasingly nervous about Michael Saylor being stubborn. Especially because with rising rates, the company will have to face higher interest costs in the future.

But beyond the symptomatic case of MicroStrategy, how can this fall be explained?

This is no longer an investment. The price of bitcoin has been on a downward trend since last November, when its highest price brought it to $ 64,400 per unit.

Then all the values ​​of technology stocks go down, which has an impact on cryptocurrencies.

In addition, concerns about weak growth and a possible recession in the world mean that no one seems to want to invest in these currencies, which are still very poorly regulated, if they do not.

Finally, as we saw last week in another episode of ZD Tech, the NFT, the little cousins ​​of cryptocurrencies, also based on blockchain technology, are also running out.

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