MicroStrategy has become the poster child for companies making investments in cryptocurrencies. For the better part of two years, the Virginia-based business intelligence company has been buying Bitcoin in bulk, and it's not stopping anytime soon.
Detractors hope to take a victory lap during the crypto market downturn, but MicroStrategy has its eyes on the prize.
No Regrets. On To The Future
Last month, MicroStrategy CEO Michael Saylor spoke with Bloomberg about their crypto market plans going forward. When host Emily Chang asked whether Saylor regretted investing in Bitcoin, he gave a resounding no. Saylor said MicroStrategy has not changed its mind or outlook about Bitcoin in the slightest.
Saylor said they understand the long-term value of Bitcoin and are willing to wait out the storm. Whatever happens with the Bitcoin price in the short term, MicroStrategy is packed with patient Bitcoin believers.
As we all remember, MicroStrategy hit it big in the crypto world after becoming one of the first public companies to invest in Bitcoin back in 2020. Since then, the company has gone on a massive purchasing spree that saw its Bitcoin balance sheet swell to over $5 billion at the market's height.
It is interesting to see the company still holding on to Bitcoin - especially since the market has been down significantly since the start of December 2021. Coin prices have taken a beating, and many investors are hedging funds. But MicroStrategy is sticking with Bitcoin through thick and thin.
This month, MicroStrategy confirmed with the Securities and Exchange Commission (SEC) that it had purchased an additional 60 BTC for $25 million.
The purchases were made between December 31, 2021 and January 31, 2022. MicroStrategy bought the coins at an average of $37,865 per BTC, including fees and other expenses. As of January 31, MicroStrategy's Bitcoin holdings amounted to about $3.78 billion.
The Bitcoin Journey Has Had Challenges
It hasn't been all rosy for MicroStrategy. The market downturn has affected the company in many ways, including a $146 million impairment loss in the last quarter of 2021.
The company recently announced its Q4 2021 earnings, showing an impairment loss of $146.6 million on its Bitcoin holding. The losses added to the company's operating expenses, which amounted to $248 million - an increase of 125 percent year-on-year.
Impairment losses are reductions in an asset's acquisition cost, usually caused by a drop in the asset's fair value. When fair value declines below the asset's purchase amount, you write off the difference.
Over the last six quarters, MicroStrategy lost $901 million in impairment losses on Bitcoin holdings. Pretty big numbers. The impairment loss for Q4 was the company's third-highest ever, amounting to 25 percent of all its Bitcoin purchases through the quarter. The highest impairment loss for MicroStrategy so far was in Q2 2021, when the company lost about 80 percent of purchased Bitcoin.
All in all, MicroStrategy recorded a net loss of $90 million in Q4 2021. Undoubtedly, the drop in coin prices contributed.
MicroStrategy has also run into some trouble with the SEC recently. Bloomberg reported that the SEC objected to some of the company's accounting practices.
The report explained MicroStrategy had been using non-Generally Accepted Accounting Principles (GAAP) reporting principles to share information related to Bitcoin purchases. The company used methods for calculating Bitcoin purchases that excluded the impact of impairment losses and share-based compensations on the sale of "intangible assets."
GAAP rules are incompatible with reporting cryptocurrency values. MicroStrategy said it believes non-GAAP rules will help investors and analysts compare performance across different reporting periods. Regardless, the SEC has asked the company to remove all additions in future filings.