The American IT firm MicroStrategy has claimed that it is mulling the possibility of yield generation on its bitcoin (BTC) holdings. At present, the firm holds BTC 129,218 (USD 4.97bn). Most of this figure is “unencumbered,” and is held in the name of its subsidiary firm MacroStrategy.
The company, which has been buying BTC using its balance sheet, issued a financial performance report for Q1 of 2022, where it noted that it could “conservatively explore future yield generation opportunities” on its “unencumbered” tokens. This would mean excluding the BTC 19,466 (USD 748.6m) that the company used to secure a ground-breaking USD 205 million BTC-backed, three-year loan from the bank Silvergate last month. And that would mean MicroStrategy could “explore” its yield generation options with a whopping BTC 95,643 (3.68m).
However, although the firms BTC-buying strategy may well prove shrewd in the long-term, it appears that short-term pain may be inevitable. A stagnant BTC market in recent months has bought with it cumulative impairment losses of over USD 1 billion for MicroStrategy, on top of aggregate costs worth USD 4 billion.
The company explained that “the original cost basis and market value” of its bitcoin holding were “USD 3.967 billion and USD 5.893 billion respectively.” This, it noted “reflects an average cost per bitcoin of approximately USD 30,700 and a market price per bitcoin of USD 45,602.79 respectively.”
Bitcoin is currently slumping toward the USD 38,000 mark after weeks spent bumping around below the USD 40,000 threshold.
However, it seems unlikely that MicroStrategy could “explore” its yield options with the entirety of its “unencumbered” BTC. Should BTC fall in value significantly during the course of the Silvergate loan, MicroStrategy would need to increase the amount of BTC used as collateral in the loan to avoid a margin call.
But the firms top financial executive Phong Le noted that bitcoin prices would need to fall by around 50% from current levels before such a call would take place. MicroStrategy followed up its loan move with another BTC buy – spending some USD 190.5 million on tokens.