Bitcoin

MicroStrategy added $150 million worth of bitcoin to its stash at an average price per coin of $23,238 in February and March, generating an 18% gain over the past few weeks. The Tysons Corner, Virginia-based company sold equity to pay for the crypto and also to extinguish debt to Silvergate Bank.

The business-software maker and bitcoin investor also freed up 34,619 bitcoins (BTC) of collateral used to back a $161 million term loan, according to a filing with the U.S. Securities and Exchange Commission, by repaying Silvergate, the crypto-focused bank based in La Jolla, California that is winding up its business after a run on deposits. The floating-rate loan was scheduled to mature in March 2025 and bore interest at a rate of 8.27% a year as of Friday, when the payoff was executed.

The most recent purchases of 6,455 bitcoins brought MicroStrategy’s holdings to about 138,955 BTC, worth $4.14 billion and acquired at an average price of roughly $29,817 each. Bitcoin BTC is currently quoted at $27,513, up 66% for the year, with much of the increase coming after March 11. The MicroStrategy purchases were between February 16 and March 23.

Silvergate’s closing announced March 9, and subsequent runs on Silicon Valley Bank and Signature Bank initially depressed cryptocurrencies but then gave them a boost —especially bitcoin—as the U.S. government guaranteed depositors would be repaid and investors apparently felt the Federal Reserve’s campaign to raise interest rates would be limited by concerns of weakness at other banks.

That could benefit bitcoin in two ways from a dollar-based perspective: The rising interest rates were making traditional money-market investments more attractive than direct holdings in crytpo, and a curtailed tightening cycle could leave inflationary pressures in the economy, a positive for holders of the original cryptocurrency.

MicroStrategy has been a long-term bitcoin bull under co-founder and former CEO Michael Saylor. In August, he gave up management of the company’s business-analytics division to concentrate on bitcoin strategy as executive chairman. At the time, the company’s bitcoin holdings amounted to $1.9 billion.

In September, MicroStrategy entered into an agreement with Cowen and BTIG to sell up to $500 million of its equity to the two firms at prevailing market prices, less a 2% commission. The filing on Monday revealed MicroStrategy raised $339.4 million from such sales between January 1 and March 24, issuing 1.3 million shares.

That works out to about $252 a share and represents about 12% of the outstanding 11.3 million shares of class A and B stock that the company reported for the end of last year. The class A shares traded at $232.22 at noon on Monday, down 9.5% for the day, possibly because of the dilution.

Michael Saylor’s new job looks a lot like his old job: adding bitcoin to the balance sheet of his business-software company with religious fervor.

“I’m a bitcoin maximalist, I happen to believe that bitcoin is an instrument of economic empowerment, it’ll be beneficial to eight billion people,” Saylor told Forbes in an interview. “I also happen to believe that bitcoin is unique,” he continues, because of “the Immaculate Conception, decentralization, and its commodity status. All of these things make it the superior asset in the space.”

The Immaculate Conception he means is the founding of bitcoin, as explained in a 2008 white paper by one or more people using the name Satoshi Nakamoto. Saylor stated that bitcoin is the only crypto asset which is truly decentralized and without an issuer. He backs bitcoin as a corporate investment in part because he believes there is regulatory agreement among U.S. regulators that bitcoin is a commodity and falls under the Commodity Futures Trading Commission’s jurisdiction. There is debate about whether various other cryptocurrencies are securities and thus fall under the Security and Exchange Commission’s purview , as that agency has stated.

“The vast majority of the other cryptos are unregistered securities,” Saylor said. “They have an issuer, they will pass the Howey Test and so if you’re going to invest in an equity type instrument, you’re really a venture capitalist. We’re not investing as venture capitalists, we don’t want to take that kind of risk. In addition to the technical risk, the competitive risk, you also have regulatory risk, the uncertainty of not knowing how they’ll be treated.”

Saylor has turned the analytics business he founded into a leveraged bet on bitcoin, with a stash worth about $1.9 billion and total debt of $2.7 billion. For Microstrategy’s first bitcoin purchase in 2020 the company used $250 million of its capital to buy the cryptocurrency. Then the company borrowed $2.4 billion and sold $1 billion of equity to fund its subsequent bitcoin investments.

The concept has been good to Microstrategy’s stock price, up 159% to $319 a share since bitcoin purchases began in 2020, though down 60% from the $816 peak it reached when the crypto was at its all-time-high on November 10. Yet the bitcoin strategy hasn’t done anything for the bottom line; the last net profit Microstrategy recorded was in Q3 2020.

Last week the company posted a $1.06 billion loss for Q2, mostly attributable to a $918 million loss on its crypto holdings. Still, unlike automaker Tesla TSLA , which winnowed its bitcoin hoard, Microstrategy revealed that it had added $10 million worth in the period. It also announced that Saylor would turn over CEO duties to CFO CFO Phuong Le, who will mind the software store. Saylor becomes executive chairman and is in charge of bitcoin strategy.

He must be okay with the switch. The company founder controls 68% of its voting power through his class B shares, though he has only 4% of the publicly traded class A, according to Microstrategy’s April proxy statement.

Before taking the crypto plunge, Microstrategy shares had produced average annual returns of about 13% since coming public in 1998, almost twice the gain of the Standard & Poor’s 500. The company’s software helps clients gather and manage data related to their businesses, but its annual revenue plateaued between $500-$600 million over the past decade. Additionally, Microstrategy struggled to grow in a market crowded with larger rivals like Microsoft MSFT and Oracle ORCL .

“In the 2017 timeframe, we decided that we were going to spend a lot more money to grow, and we channeled hundreds of millions of dollars into sales and marketing and growth initiatives,” Saylor says. “What we found is, it doesn’t matter how much money you spend, it doesn’t move the needle.”

In order to save his business, Saylor felt Microstrategy needed to take a risk. He chose to go for crypto gold.

The software business remains profitable, bringing in $22 million net cash from operations over the past six months. However, that figure is down from $76 million over the similar period in 2021. Expanding the software operation is now Le’s job.

Bitcoin’s BTC bad year put a dent in the Microstrategy balance sheet. After the dust from the crypto decline settled, liabilities outweigh assets in Q2 for the first time since 2003, resulting in $187.1 million of negative shareholder’s equity.

Little light was shed on finances during the company’s quarterly earnings call. For the question-and-answer session, Shirish Jajodia, Microstrategy’s director of investor relations, read out questions from unnamed analysts, an unusual format.

While the financial benefits may be dubious, the bitcoin bet has certainly launched Microstrategy – and Saylor – into the public eye. His bitcoin-focused Twitter account has amassed 2.6 million followers, and he regularly appears in the media to speak as an advocate for the original cryptocurrency.

“Nobody wants to talk about business intelligence. If I were to tweet nonstop about business intelligence, then that engagement would fall off dramatically, because the average person doesn’t buy enterprise business-intelligence software,” Saylor said. “The average person is concerned about macroeconomics, politics, digital assets, crypto freedom.”

In addition to growing his personal audience, Saylor stated that bitcoin drives public engagement with Microstrategy. The company’s trading volume is also heavily impacted by investor interest in bitcoin.

“The majority of the enterprise value of the company is now attributable to the bitcoin strategy,” Saylor says. “The bitcoin strategy doesn’t have a full-time employee. I represent bitcoin. It’s not a labor-intensive business or an activity-intensive business; it really is a capital-intensive business.”

Since Microstrategy’s first bitcoin purchase in 2020, the company has funneled revenue from its software business into purchases, according to Saylor. In March, Microstrategy also took a $205 million loan from crypto-focused Silvergate Bank to buy more bitcoin, using existing holdings as collateral. If bitcoin falls below $21,000 – it’s under $24,000 now – that could trigger a margin call, but Saylor has said the company’s loan is 10x ZRX overcollateralized and has plenty more on its balance sheet to cover if necessary. Revenue from the software business is also used to pay interest on the Silvergate loan.

Beyond the financial benefit of the strategy itself, the company’s status as a way to gain bitcoin exposure on a traditional financial market makes capital-raising easier, “I don’t have to beg people to invest in MicroStrategy MSTR stock,” Saylor said.

MicroStrategy MSTR , the business-software company that has a thing for bitcoin still loves the cryptocurrency even though it sold some for tax purposes last month, employing a tactic that could help other long-term fans ease the pain from the asset’s months-long slide.

As part of a flurry of late-year transactions, MicroStrategy sold about 704 bitcoins at an average price of $16,776 on December 22, the first time the company had divested any holdings of the leading cryptocurrency. But that followed purchases of about 2,395 tokens for about $17,871 each from November 1-December 21.

The company said in an SEC filing that it planned to use losses generated by the sale to diminish previous capital gains, which could result in tax benefits. It also said it turned around and bought 810 bitcoins on December 22 at about $16,485 each, meaning MicroStrategy had a net increase of about 2,501 in its bitcoin hoard since the start of November, which added to holdings of 130,000 at the end of September.

“This gives you a short-term capital loss of $770,880 before commissions, which can be used to offset both long and short capital gains generated during the year plus allow a $3,000 loss against ordinary income if there are any excess of the losses. Any excess over that can be carried over to 2023 to offset more capital gains the same way,” says Brian T. Stoner, a Los Angeles-based certified public accountant.

The strategy takes advantage of bitcoin’s status as a commodity that is not subject to the wash-sale rules for securities, under which a seller must wait 30 days to repurchase an investment in order to book the tax loss. In the case of MicroStrategy’s bitcoin portfolio, the benefit may be large.

“The refund can be substantial if MicroStrategy can match the losses to its 2021 purchases, where it paid on average $49,229 per bitcoin. Considering that they repurchased bitcoin a few days after its sale, Microstrategy probably thinks that its price will rise again in the future,” says Steven Chung, a Los Angeles-based tax lawyer.

Indeed, says Shirish Jajodia, the vice president of treasury and investor relations at MicroStrategy, “There is no change to our bitcoin strategy, which is to acquire and hold bitcoin for the long term.”

Retail cryptocurrency investors can also use this tax-harvesting strategy, and for many the $3,000 reduction against ordinary income could be significant.

“As Bitcoin BTC and crypto continue to experience global adoption, I suspect we’ll be seeing more such tax-loss harvesting strategies employed by a larger number of investors to offset capital gains at the end of any given year” says Jeffrey Blockinger, the general counsel of Quadrata, a Los Angeles-area blockchain security company.

“MicroStrategy will likely now have more cash on its balance sheet for potentially funding any number of initiatives that could include share buybacks or buying more, and now relatively cheaper, Bitcoin,” says Blockinger.

In fact, MicroStrategy already does have some more cash on its balance sheet. In the SEC filing that announced the tax sale, the company also said it had taken advantage of a September 9 agreement to sell stock to Cowen COWN & Co. and BTIG, issuing 218,575 class A shares from October 1 to December 27 at an average price of $213.16, for a total of $46.4 million. That sum is roughly equivalent to the cost of acquiring the net 2,501 bitcoins it purchased in November and December.

Whether the funds raised were specifically meant to finance bitcoin purchases is unclear as MicroStrategy declined to comment. However, the SEC filing that announced the sales agreement listed the planned use of proceeds as general corporate purposes including acquisition of the cryptocurrency.

The day that sales agreement was signed, MicroStrategy shares closed at $261.97. Since then, the stock has declined 37% to $165.06, which includes a rally of $17.71, or 14%, on Wednesday. Bitcoin is down 20%, to $16,797, since the September 9 agreement. The company was unprofitable on a net income basis for the seven quarters through Q3.

Bitcoin BTC has found its feet this year after a rocky 2022 that saw a steep price crash and the emergence of serious regulatory concerns .

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The bitcoin price has climbed to around $28,000 per bitcoin, up from under $17,000 at the beginning of the year. The combined bitcoin, ethereum and crypto market has added over $300 billion amid rising expectations of a Federal Reserve u-turn and institutional financial giants quietly expanding into crypto .

Now, some of the biggest bitcoin, ethereum and crypto bulls are predicting the ongoing banking crisis that’s spread to German giant Deutsche Bank could have primed bitcoin for a fresh break out.

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“The behavior of the [bitcoin] price through this crisis is going to attract more institutions,” Ark Investment Management’s Cathie Wood told Bloomberg this week, alongside bullish technical price analysis that shows bitcoin could be headed for around $35,000 per bitcoin.

“The fact that bitcoin moved in a very different way from the equity markets, in particular, was quite instructive,” Wood, who’s previously said she expects a huge bitcoin and ethereum price break out , added.

The banking crisis that began with the collapse of U.S. Silicon Valley Bank, Signature and Silvergate has spread to Europe, first engulfing Credit Suisse and now threatening Deutsche Bank. Deutsche Bank’s share price fell sharply on Friday, adding to a crash that’s wiped away a fifth of the bank’s market capitalization so far this month.

“The banking crisis, which caused the market to price in rate cuts starting in the summer, has had little knock-on effect on crypto (so far),” Macro Hive analysts wrote in an emailed note.

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MORE FROM FORBES Bitcoin At $1 Million In 90 Days And Dollar Destroyed-Huge Crypto Price Prediction Bet Fueled By Bank Crisis And Hyperinflation By Billy Bambrough

This week, the Federal Reserve opted for a 25 basis point interest rate hike despite earlier increasing its balance sheet by $300 billion to prop up the banking system.

Expectations have soared over the last few weeks that the Fed will be forced to flip dovish due to the banking crisis— something some think could trigger a return to a bitcoin, ethereum and crypto bull market .

From Bitcoin to Ethereum, cryptocurrencies have been hailed as the new way to pay for products and services online.

But according to one expert, they do not ‘bring anything useful for society’, despite using up massive amounts of processing power.

Michael Kagan, chief technology officer at chipmaker Nvidia, has said cryptocurrencies will never ‘do something good for humanity’.

The expert has citied artificial intelligence ( AI ) – including chatbot

Cryptocurrencies perform mining to generate new coins and verify transactions, but it’s more environmentally costly than beef production , a recent study found.

Kagan told the Guardian that the development of chatbots along the lines of ChatGPT was a more worthwhile act than crypto mining.

ChatGPT, created by San Francisco-based company OpenAI, has been trained on a massive amount of text so it can generate human-like answers to questions .

Since its release in November, it’s been used to write essays, prescribe antibiotics, fool job recruiters and even come up with beer recipes .

‘With ChatGPT, everybody can now create his own machine, his own programme,’ Kagan said .

‘You just tell it what to do, and it will and if it doesn’t work the way you want it to, you tell it “I want something different”.’

In comparison, crypto is not ‘something that will do something good for humanity’, Kagan said.

Cryptocurrencies are the internet’s version of money – unique pieces of digital code that can be transferred from one person to another.

Mining, meanwhile, lets people earn cryptocurrencies by solving computational problems that verify transactions in the currency.

‘All this crypto stuff, it needed parallel processing, and [Nvidia] is the best, so people just programmed it to use for this purpose,’ Kagan said .

‘They bought a lot of stuff, and then eventually it collapsed, because it doesn’t bring anything useful for society. AI does.’

His comments came despite Nvidia selling graphics processing units (GPUs) for use in crypto mining, although the company released software back in 2021 that deliberately biased against the practice.

Instead, the US company likes to focus on providing its chips to the gaming sector, helping render graphics and images by performing rapid mathematical calculations.

It’s also rapidly expanding into fields such as AU and provides its GPUs to smart vehicles and robotics – including the likes of Tesla and Amazon.

‘[GPU] users are constantly discovering new applications for them, from weather simulation and gene sequencing to deep learning and robotics,’ Matt Wuebbling, global head of GeForce marketing at Nvidia, previously told the Guardian .

‘Mining cryptocurrency is one of them.’

Earlier this month, Microsoft said it had recently purchased tens of thousands of Nvidia AI-focused GPUs to power the workload of OpenAI, the company behind ChatGPT.

Microsoft is an investor in the company and the two are engaged in a partnership aimed towards accelerating ‘AI breakthroughs’.

OpenAI has has already launched a more powerful second version of the tool called GPT-4 , which is so advanced it could be ‘harmful’.

‘GPT-4 and successor models have the potential to significantly influence society in both beneficial and harmful ways,’ the company said.

Its success has created a panic at Google, which fears that its days as the world’s number one search engine could soon come to an end.

Google scrambled to come up its own equivalent chat bot, called Bard , to be released in the ‘coming weeks’.

Unfortunately for Google, Bard presented incorrect information as fact in a Twitter video, instantly wiping £100 billion from the tech giant’s value.