MicroStrategy’s Bitcoin Wager Has Turned Into A Losing Bet

MicroStrategy

MSTR
embarked on a strategy of using its cash and then debt to buy alternative assets when it announced its June 2020 quarter results on July 28, 2020. Over almost two years since then it has bought 129,218 Bitcoins as of May 2, 2022, per its March 2022 10-Q filing. The company has spent just under $4 billion for an average cost of $30,700.

Unfortunately, since last Thursday, May 12, Bitcoin has been trading a bit over to around $2,000 under MicroStrategy’s breakeven price of $30,700 and it has gotten as low as $26,350. The recent downturn in Bitcoin’s price (over $10,000 or 26% in the past month), driven by the increase in interest rates and a risk off environment becoming more prevalent, has also hit the company’s share price (fallen over $250 or 56% in the past month).

A roller coaster ride

One point to keep in mind is that even while MicroStrategy’s stock fell over 25% last Wednesday to $168.20 (but rebounded to $204.57 by Friday), is down 62% this year and down 84% from its all-time high of $1,272.94 on February 9, 2021, is that the shares are up 67% from $122.74, the day after the company made its initial announcement about buying cryptocurrencies.

As seen in the chart below from StockCharts.com, the shares rocketed up and then quickly pulled back by early 2021. They settled in a broad range of about $500 to $800 from March 2021 to January 2022. The range then moved down to $300 to $500 for most of this year until last week as it has fallen over $100 in just over a week.

For every $100 Bitcoin falls it only takes $1.14 off the value of MicroStrategy’s stock, but for every $1,000 it can impact the shares by $11.45 and if Bitcoin were to fall $10,000 it can wipe out $114 of value from MicroStrategy’s stock. And keep in mind that it has fallen from a high of $68,790 on November 10 last year.

As can be seen…