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MicroStrategy’s CEO has hinted at the possibility of selling the company’s Bitcoin if the stock price falls below its Bitcoin value, which he considers a last-resort option.
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The firm has built up $1.44 billion in reserves to manage preferred dividends, navigating around selling Bitcoin by using stock sales instead.
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However, the outlook has shifted dramatically, with anticipated net gains of $24 billion now transforming into a potential loss of $5.5 billion due to a significant drop in Bitcoin’s price.
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While some investors thrive, others find themselves at a loss, possibly not understanding the different approaches required to build wealth.
For about six months now, MicroStrategy has operated under a firm belief: never sell Bitcoin. This principle, articulated by Chairman Michael Saylor, has become somewhat of a guiding mantra for the company, even driving its stock price higher than its actual asset value.
Saylor is known for marking the company’s Bitcoin acquisitions through colorful posts, establishing a distinct crypto culture. Until now, there’s been no indication of selling. He claims that the plan is to purchase more Bitcoin whenever prices dip.
But the current situation has changed that narrative. Bitcoin reached upwards of $126,000 before experiencing a significant decline, losing a third of its value. Yet, Saylor has stayed committed, increasing the number of Bitcoins held by MicroStrategy to 650,000, which is 10,000 more than just a month ago.
During a recent podcast, MicroStrategy CEO Phong Le was asked directly if the company might sell Bitcoin. Contrary to Saylor’s earlier assertions, Le admitted that a sale could be on the table if stock prices drop below Bitcoin’s value and other funding options aren’t available.
Le explained, “If the stock trades below the Bitcoin value and you can’t raise funds to pay dividends, then selling Bitcoin becomes a mathematical necessity.” It appears MicroStrategy isn’t actively selling its Bitcoin yet, but the door is now ajar, which raises concerns. Some speculate that a forced sale might be on the horizon, especially with key deadlines approaching.
This morning, MicroStrategy filed with the SEC indicating the creation of $1.44 billion in reserves for dividends and debt interest, funded through stock sales. Naturally, this dilutes the value for current shareholders, contributing to an almost 11% drop in stock price today.
While the previous predictions anticipated Bitcoin prices perhaps hitting $150,000, that expectation now feels unrealistic. The latest guidance suggests Bitcoin’s value might settle between $85,000 and $110,000, likely turning what was supposed to be profit into considerable losses.
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previous guidance |
Current guidance |
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Operating profit |
$34 billion |
($7 billion) to $9.5 billion |
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net profit |
$24 billion |
($5.5 billion) to $6.3 billion |
|
Earnings per share |
$80 |
($17) to $19 |
Source: Strategy SEC filings. Numbers in parentheses indicate losses. Table by author.
The updated projections indicate a decrease in expected BTC yield, from 30% down to 24%, and a decline in BTC dollar growth from $20 billion to $10.6 billion, signaling a troubling financial outlook as Bitcoin values plunge.
There’s a prevailing belief that Bitcoin’s price would only appreciate, yet MicroStrategy’s strategies have hit hard times. Although Saylor has experienced both market highs and lows before, the company now faces an unsettling situation that could trigger future sales.
It feels like expectations have shifted drastically, and the looming harsh realities may soon press down hard. Choices about how to invest could be pivotal moving ahead, with the wrong decisions leading to severe consequences for portfolios, irrespective of whether the investment is modest or substantial.
