The crypto market has been performing relatively well lately, with coins looking to push higher. While markets slowed and investors believe that a consolidation might be in play, institutions are coming into the market once again.
Kicking off the institutional entry spree is MicroStrategy - the business intelligence firm that just can’t seem to get enough of Bitcoin.
Picking Up Where It Stopped
MicroStrategy has already made a name for itself in the market. The company began buying millions of dollars worth of Bitcoin as far back as 2020, and it has a massive stash of the cryptocurrency at this point. Looking to expand on that, it announced last week that a subsidiary had completed another massive BTC purchase.
In a filing with the Securities and Exchange Commission (SEC), MicroStrategy explained that one of its subsidiaries - called MacroStrategy - had purchased an additional 4,197 BTC. The purchase, which began as far back as February 15, saw MacroStrategy load up on these tokens at an average price of $45,714. This means that the company spent about $190.5 million on the purchase in total.
MacroStrategy first confirmed that it was stepping into the Bitcoin space last month. In an official statement, the subsidiary claimed that it had gotten a $205 million loan facility from crypto-friendly Silvergate Bank. The company confirmed that the loan would be used to purchase Bitcoin, pay additional fees and interest on the loan, and cover some of its other expenses.
Inspiration For Other Institutions
Ever since it began buying up BTC in 2020, MicroStrategy has grown to become the largest institutional holder of Bitcoin in the world. According to data from Bitcoin Treasuries, the company holds almost $6 billion in Bitcoin.
The purchase further cements MicroStrategy’s place in the market. The Virginia-based company has become a beacon for many other large investors and institutions looking to get exposure to the market. Despite the bear market that has trailed crypto for months, MicroStrategy has refused to sell any of its positions and continues to ride the crypto wave.
Interestingly, this purchase wasn’t the first from MicroStrategy this year. Between December 31, 2021 and January 31, 2022, MicroStrategy bought the dip, adding 660 BTC to its treasury at a total cost of about $25 million. Considering the gains made by the market since then, MicroStrategy should be sitting on a tidy profit already on that purchase.
MicroStrategy’s action is expected to draw in even more institutions, many of whom will be looking to make similar moves. With fears of inflation and geopolitical conflicts rocking the market, many believe that this could be a good time for investors to hedge their wealth and move into alternative assets. The recent jumps in cryptocurrency prices suggest that we could be in for an institutional influx.
Bumps Along The Road
Of course, this isn’t to say that all of MicroStrategy’s crypto moves have been rosy. The company infamously suffered a massive loss of $146 million to impairment charges related to its Bitcoin purchases in the last quarter of 2021. In its Q4 2021 financial report, MicroStrategy claimed that the losses were due to drops in Bitcoin’s value over time.
The Bitcoin impairment loss added to MicroStrategy’s overall expenses for the quarter, which increased to $248 million - a massive jump of 125 percent year-over-year. At the time, MicroStrategy had even accrued a staggering $900 million in impairment charges on its Bitcoin holdings since it added the leading cryptocurrency to its balance sheet.
The company also got in trouble with the SEC after the agency rejected its Bitcoin accounting practices. The financial watchdog objected to MicroStrategy reporting data on Bitcoin purchases based on non-Generally Accepted Accounting Principles (GAAP).
In its argument, the SEC reportedly claimed that MicroStrategy had used non-GAAP methods to calculate figures for its Bitcoin purchases, thus excluding the impact of share-based compensation expenses and impairment losses. Given how large these impairment losses were, one could easily see why MicroStrategy would not want to include them in its reporting.