MicroStrategy doubles down | Financial Times

MicroStrategy, a $4.6bn bitcoin asset gatherer masquerading as a tech company, is doing what every gambler is warned against doing: doubling down.

After chief executive and large boat enthusiast Michael Saylor spent the weekend at the bitcoin conference in Miami not being a bro, the company announced Monday that it was, you guessed it, raising $400m of senior secured debt to add to its stash of 92,079 bitcoins.

The debt will be secured against MicroStrategy’s assets, excluding its current bitcoins and digital assets, which have been parked in a vehicle named MacroStrategy LLC (somewhat ironically, given the seeming lack of macro strategy, or of any strategy at all).

It won’t be much of a surprise to followers of the business. After all, the company has been raising various forms of debt and equity over the past year in order to buy king crypto.

What was a surprise, however, was that the announcement came at the same time as an 8-K filing landed on MicroStrategy’s SEC page. Which, as you might imagine from its coincidental timing with news of the capital raise, contained some slightly more negative news.

Here’s the statement in full (with our emphasis):

On June 7, 2021, MicroStrategy Incorporated (the “Company”) disclosed the following information: based on the fluctuations in market price of bitcoin during the second quarter of 2021 through the date of this Current Report on Form 8-K, the Company expects to incur an impairment loss of at least $284.5 million related to its bitcoin for the three months ending June 30, 2021.

If a $284.5m impairment sounds like a lot to you, it’s because it is.

Flip open MicroStrategy’s first quarter balance sheet (page six), and cast your eyes down to its equity position as of March 31:

Yep, the company had just $365m of equity two months ago. So the mostly downward fluctuations in bitcoin’s price since have wiped out 78 per cent of its equity base. Yowza.

The effects on MicroStrategy’s profit and loss statement won’t be too pretty either. The company had just $100m of gross profits in the first quarter, so expect the impairment to really bleed through to its bottom line when the second-quarter results hit in mid-summer.

Doubling down can be profitable. Ask any trader worth his salt. The problem is that it only works if you have an idea of the fair value of the asset you’re buying. Otherwise, to paraphrase famed trader Paul Tudor Jones, you might just end up a loser averaging a loser.