2022 has been disastrous for the crypto space. Yet again, Bitcoin is witnessing one of the most severe crashes and has marked a record as the fifth asset to witness the worst collapse in the history of finance. Bitcoin, which accounts for 41% of the cryptocurrency market, experienced lows that had not been seen since the pandemic’s low two years ago.
When a crash of this magnitude occurs, it is safe to assume that almost all crypto holders are taking a loss – especially those who got into the game later. Not only individuals but also firms have been hit hard. This includes the largest bitcoin-owned company, MicroStrategy Inc. is included. Its takeover is said to have resulted in unrealized losses totaling $1.8 billion.
The software firm with headquarters in Tysons Corner, Virginia, and its affiliates, currently control about 130,000 Bitcoin, valued at about $2.2 billion at the time of writing. Each Bitcoin cost approximately $30,369. The total cost of the Bitcoins purchased was close to $4 billion. The corporation is now $1.8 billion in the hole as a result.
Disadvantages of MicroStrategy
Michael Saylor, the firm’s executive chairman, had declared that the business would never sell its bitcoins. As a result of the refusal to sell, the Corporation is sitting on huge paper losses. Additionally, the business incurred an impairment charge of $917.8 million after reporting losses as a result of the fall in the price of bitcoin earlier this year.
Since Bitcoin is categorized by MicroStrategy as an intangible asset, any decline in its value must be permanently recorded as a loss. If it decides to sell its Bitcoin, it must notify the Internal Revenue Service of any capital gains.
After MicroStrategy reported a $1 billion loss in August 2022, Saylor resigned as CEO to focus on the business’s bitcoin strategy. Since then, the business spent an additional $6 million to buy 301 bitcoins in September 2022. Since then, the average price of bitcoin has declined by about 15%, which means they are suffering even bigger losses at the moment.
Michael Saylor, however, insisted that compared to cash or gold, cryptocurrencies were less risky investments and shall reap massive profits later.
No Margin Call?
Saylor denied that MicroStrategy received a margin call on a $205 million loan with SilverGate Capital secured by bitcoin in June 2022. When the margin value falls below a certain level, the investor must contribute more funds to maintain open positions.
Saylor stated that unless the price of Bitcoin dropped below $3,500, the business had enough Bitcoin to keep the debt collateralized.
Urgent need for crypto regulations
Saylor said in an interview with CNBC on November 10, 2022 that the current collapse of FTX is both beneficial for bitcoin and destructive for the cryptocurrency industry. According to him, unlike exchange-traded tokens, bitcoin is a commodity that can be self-managed. ,
He insists that the regulators must provide clearer instructions on how to register a digital security, a digital currency, a digital token, and one’s digital exchange.
