Bitcoin plunge spells trouble for Michael Saylor’s MicroStrategy

Michael Saylor, chairman and chief executive officer of MicroStrategy, first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

Eva Marie Uzcategui | Bloomberg | Getty Images

Having once lost $6 billion at the height of the dotcom bubble, software entrepreneur Michael Saylor is no stranger to volatility in the financial markets.

In 1999, MicroStrategy, Saylor’s software firm, admitted to overstating its revenues and erroneously reporting a profit when it actually made a loss. The fiasco shaved over $11 billion off MicroStrategy’s stock market value in a single day.

Now, more than two decades later, MicroStrategy is again facing questions over some of its accounting practices — this time in relation to a $4 billion bet on bitcoin.

The world’s biggest cryptocurrency briefly tumbled below $21,000 Tuesday, a key level at which MicroStrategy would be faced with a margin call that investors fear could force the company to liquidate its bitcoin holdings.

MicroStrategy was not immediately available for comment when contacted by CNBC.

$1 billion loss

Saylor first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

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With bitcoin currently trading at $22,818, MicroStrategy’s crypto stash would now be worth just over $2.9 billion. That translates to an unrealized loss of more than $1 billion.

Margin call

On an earnings call in May, MicroStrategy Chief Financial Officer Phong Le explained that if bitcoin were to fall below $21,000, it could be faced with a margin call where it’s forced to cough up more bitcoin — or sell some of its holdings — to meet its collateral requirements. Bitcoin briefly slipped below that level Tuesday.

“Bitcoin needs to cut in half or around $21,000 before we’d have a margin call,” Le said at the time. “That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there.”

It’s not yet clear if MicroStrategy has pledged more funds to secure the loan.

In June, Saylor insisted the company has more than enough bitcoin to cover its collateral requirements. The cryptocurrency would need to slump to $3,500 before it had to come up with more collateral, he added.

Shares of MicroStrategy, considered by some as a proxy for investing in bitcoin, tumbled more than 25% on Tuesday, taking its year-to-date losses to over 70%. That’s even worse than bitcoin’s performance — the No. 1 digital coin has roughly halved in price since the start of 2022.

Saylor hasn’t yet commented on bitcoin’s drop below $21,000. He posted a new profile picture on Twitter Monday showing his face with lasers coming out of his eyes — a nod to a meme signaling bullishness on bitcoin.

A few hours after, Saylor tweeted: “In #Bitcoin We Trust.”

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