Michael Saylor's Strategy Has Spent $64 Billion Buying Bitcoin at an Average Price of $75,482 a Coin. Here's Why That Position Is Sitting on a $10 Billion Paper Loss Today.
Key Points
Strategy has accumulated 840,447 BTC at an average price of $75,482.
The current price of Bitcoin has dipped to $65,000, meaning that the company is now sitting on massive unrealized losses.
Paper losses have real world consequences, as investors in Strategy's stock are finding out.
- 10 stocks we like better than Strategy ›
Since August 2020, when it first launched its bold Bitcoin (CRYPTO: BTC) treasury company model, Michael Saylor's Strategy (NASDAQ: MSTR) has acquired a remarkable amount of Bitcoin. All told, the company now owns 840,447 BTC. To put that number into perspective, that's roughly 4% of all Bitcoin in circulation.
That's the good news. The bad news is that Strategy's Bitcoin position is now deep under water. The current price of Bitcoin is just $65,000, but Strategy's average price to acquire Bitcoin is $75,482. Thus, a position that took nearly $64 billion to acquire is now worth just $54 billion. That's why the company is sitting on a $10 billion paper loss.
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The math no longer works
This might sound obvious, but when the price of Bitcoin is zooming higher, Strategy is able to report massive paper gains. When the price of Bitcoin is falling (as it is now), the company is forced to report massive paper losses. Until the price of Bitcoin moves higher, then, Strategy is going to be reporting bad news to investors for the foreseeable future.
The problem is that these paper losses have real world consequences for how investors perceive Strategy. Just take a look at Strategy's stock price. It's down 35% year to date. By way of comparison, Bitcoin is only down 25% year to date.
So investors in Strategy stock are getting pounded even harder than investors in Bitcoin. There should be no surprise here. Strategy has always been a leveraged bet on Bitcoin, and this is what happens on the downside.
Image source: Getty Images.
For now, Strategy has suspended its Bitcoin purchasing operations and unveiled a new capital management plan, all designed to boost the value of its stock offerings (both common and preferred).
Unfortunately, a key part of this strategy is a newfound willingness to sell Bitcoin to raise cash for ongoing operations. That's something the company promised it would never do. If there's one company associated with the advice "Never sell your Bitcoin," it's Strategy.
What numbers matter for Strategy?
And it's not like Strategy's $10 billion paper loss is a hidden secret, either. Strategy has been very transparent about its Bitcoin operations. When it reports quarterly earnings to investors, it tells them exactly what is happening. On social media, there are regular updates about recent purchases or sales. On its website, Strategy's home page is an orange-and-black mosaic of different numbers, statistics, and metrics about its Bitcoin holdings.
Unfortunately, there is only one number that matters anymore: the price of Bitcoin. As long as the price of Bitcoin is under $75,482, there is absolutely no reason to consider investing in Strategy. You're better off just investing in Bitcoin itself and waiting for its price to recover.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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