MicroStrategy Faces $3 Billion Loss as Bitcoin Price Tumbles Amid Market Uncertainty
Shares of Michael Saylor’s company, MicroStrategy (now doing business as Strategy), are experiencing a significant downturn amid growing investor concerns about the economic landscape and waning enthusiasm for cryptocurrency-related ventures. According to IndexBox, the stock plunged 16% on Monday, reaching $240.96, reflecting a potential 49% decline from its all-time high of $473.83 in November.
The company has spent $21.2 billion since November 10 to buy Bitcoin whose value has fallen to around $17.3 billion as of Monday afternoon, an analysis of company filings by Investor’s Business Daily indicates. This represents a paper loss of approximately $3.9 billion on its recent Bitcoin acquisitions.
Bitcoin Buying Binge Comes to a Halt
Strategy, formerly known as MicroStrategy, announced Monday that it hasn’t purchased any Bitcoin since February 23. The pause by the company that’s been called a Bitcoin market “whale” is contributing to the cryptocurrency’s sell-off after the White House crypto summit concluded without any commitment by the Trump administration to add to the government’s existing holdings of Bitcoin.
The Bitcoin price has retreated to around $78,750, representing its lowest level of the year. The initial surge in MicroStrategy’s shares was largely boosted as CEO Michael Saylor transformed the company into a de facto Bitcoin holding firm, capitalizing on speculation that the Trump administration’s policy could favorably impact Bitcoin prices.
However, with the recent revelation that the proposed Strategic Bitcoin Reserve will utilize existing governmental tokens without incurring new expenses, investor sentiment has cooled considerably. The broader financial market aversion to risk assets, compounded by trade tensions involving the United States, Canada, Mexico, and China, has further dampened Bitcoin prices, causing a drop of approximately 5% on Monday.
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Strategic Bitcoin Reserve Plans
President Donald Trump’s executive order will pave the way for a Strategic Bitcoin Reserve comprising current cryptocurrency holdings obtained through law enforcement activity. The order also tasks the secretaries of treasury and commerce with developing “budget-neutral strategies” to acquire additional Bitcoin, as long as they impose no costs on taxpayers.
There’s speculation that Trump could exchange some of the nation’s gold reserves for Bitcoin. However, any government buying of Bitcoin, even if it’s just a shift from one financial asset to another, might be politically problematic at a time when Trump and Republicans are trying to slash federal spending and Medicaid cuts are on the table.
Strategy’s Financing Approach Changes
Strategy spent $23.2 billion on Bitcoin purchases from October 30 to February 23, funded by $16.8 billion worth of stock offerings and $6.4 billion in debt proceeds. The company has already used approximately 80% of its $21 billion in planned common stock sales.
Now that MSTR stock and Bitcoin prices are in retreat, a key question is whether creditors will continue to offer Strategy the exceedingly generous 0% interest terms it received last month when borrowing $2 billion via notes that are convertible into stock. As Strategy’s 10-K warned, if market conditions change, “we may not be able to obtain equity or debt financing in a timely manner, on favorable terms, or at all.”
On Monday, Strategy announced plans to offer $21 billion worth of preferred stock with an 8% interest rate. This follows a similar $584 million offering in February that established the preferred stock which trades under the ticker STRK. Monday’s announcement suggests this will be the main financing mechanism going forward, assuming there is sufficient investor demand.
The preferred stock tumbled 8.2% to 84.80 on Monday. As a result, the effective interest rate on newly issued preferred shares would be approximately 9.4%, a rate that could continue to rise if the preferred stock falls further.
Saylor’s Strategy Under Scrutiny
Both Strategy and its creditors had operated under the assumption that Bitcoin was virtually guaranteed a one-way ticket to much higher prices under the Trump administration. Strategy spent $21.2 billion buying Bitcoin at an average price of $96,458 per Bitcoin from November 10 to February 23, a price point that now appears questionable as market conditions deteriorate.
Before the recent spending binge, Strategy held 279,420 Bitcoin purchased at an average price of $42,692. The recent purchases of 219,676 Bitcoin raised the company’s average acquisition price to $66,357 per coin, significantly increasing its exposure to market volatility.
Market Premium at Risk
Strategy stock faces two major risks: the potential for continued Bitcoin price declines and the possibility that the premium investors have given Strategy over the value of its Bitcoin holdings will contract. The stock tumbled 16.7% to $239.27 in Monday’s stock market action, finishing at its lowest closing price since Election Day.
Strategy currently has a market value of approximately $70.4 billion, based on 294 million shares, which includes shares after conversion of all its convertible notes. This valuation approach makes sense given that Strategy intends to hold all its Bitcoin rather than pay cash when the notes mature.
This means investors are currently giving Strategy a 79% premium to the $39.3 billion value of its Bitcoin holdings. The premium has already shrunk significantly from 164% on November 10, before the latest buying binge began. Nevertheless, this premium still allows Strategy to buy $1.79 worth of Bitcoin for each $1 of stock it issues.
If investors decide that Strategy doesn’t merit this premium and financing becomes more expensive, there would be little rationale for investing in MSTR stock as opposed to Bitcoin directly or through a Bitcoin-related ETF. Despite these challenges, MicroStrategy maintains a robust outlook on Wall Street, with analysts unanimously rating it as a buy and projections suggesting a price target of $540, well beyond last year’s peak.
The broader crypto market has also faced turbulence, with Coinbase Global Inc. seeing a 26% fall since mid-January and similar downtrends observed in companies such as Galaxy Digital Holdings Ltd. and Riot Platforms Inc., according to data from the IndexBox platform.
