The ‘Bitcoin play’ that MicroStrategy, Tesla, & other Institutions are laying out

Saif Naqvi
Source: Pixabay

Bitcoin proponent Michael Saylor is seemingly treading on thin ice when it comes to his company’s BTC strategy. On Wednesday, MicroStrategy posted a net loss of $90 Million, compared to a profit of $2.6 Million a year ago. The Virginia-based firm’s performance was severally impacted by impairment charges of $146.6 million on its Bitcoin holdings during the quarter.

MicroStrategy has been unprofitable in the last five of the six quarters since investing in Bitcoin, according to Bloomberg. The company was profitable in eight of the nine quarters before adding Bitcoin to the balance sheet.

Despite the losses, CEO Michael Saylor stood by his investment direction. “Today, MicroStrategy is the world’s largest publicly traded corporate owner of bitcoin with over 125,000 bitcoins. We will continue to evaluate opportunities to raise additional capital to execute on our bitcoin acquisition strategy,” he added in an earnings call.

At first glance, Saylor’s moonshot vision has not gone according to plan. During Q4, the firm added 10,300 Bitcoin’s to its portfolio as the world’s largest digital asset took a beating of 34% in series of dips and crashes.

To further complicate matters, the company’s back and forth with the U.S. Securities and Exchange Commission came to a dead end. In January, the watchdog said that it could not exclude Bitcoin’s volatility from the unofficial accounting standards used to evaluate crypto holdings.

Under the applicable accounting rules, value of digital assets must be recorded at cost and then only adjusted the value goes down. A price increase does not immediately reflect in the balance sheet unless the asset is sold. In either case, MicroStrategy is not letting go of its holdings in the near future. “Never. No. We’re not sellers. We’re only acquiring and holding Bitcoin, right? That’s our strategy”, Saylor discussed in an interview recently.

A report showed that other institutional firms holding BTC have also suffered losses due to the wild price swings during the so-called “crypto-winter”. However, the “HODLing” strategy remains undeterred. Tesla, which is the second biggest holder of Bitcoin amongst publicly traded companies, revealed that it had not sold any of its Bitcoin’s during Q4 despite taking a $51 Million impairment hit in Q3.

Paper Gains and Unrealized Profits

Even though Bitcoin has had a turbulent time of-late, most companies still recorded a paper gain on their digital asset investments as the purchases were made during dips and not at peaks. For instance, MicroStrategy held more than 125,000 Bitcoin as on 31 January, which were acquired at an average price of $30,200 per coin. If sold, this translated to a paper gain of 27% when compared to Bitcoin’s price of $37K at the time of writing.

Institutional firms commitment to Bitcoin and other cryptocurrencies are not reaping immediate results, but perhaps that’s exactly what the long game is about. The king coin’s volatility would be offset in the long run through an increase in institutional adoption. Until then, it’s not abnormal to see firms take a hit on their crypto holdings.