MicroStrategy announced the purchase of 1 070 Bitcoins for $101 Million in an SEC filing on Jan. 6.
This marks the firm’s ninth consecutive week of aggressive purchases, bringing its total Bitcoin holdings to 447,470 BTC as of Dec. 31, 2024.
According to current market values, the digital assets are valued at $44.3 billion. They were bought for $27.97billion.
FASB Rules
Michael Saylor, CEO of the company, announced that it had also updated the Financial Accounting Standards Board’s (FASB) crypto reporting rules.
The new standard requires gains and losses from valuation changes to be recorded in net income, introducing greater volatility to the company’s financial results.
On this basis, the company projects a growth of $12.8 billion net in its beginning retained earnings for 2025, based on a valuation increase of $17.9 Billion in digital assets.
It is partially offset by deferred liabilities of $4 billion and deferred asset reductions of $1.2billion.
Bitcoin Risks
MicroStrategy outlined the risks of its Bitcoin-centric approach in the SEC filing.
The firm disclosed that it was concentrating the majority of its assets on Bitcoin, which increased the risk that the crypto would be affected by price fluctuations and regulatory changes.
The company noted also that its Bitcoin strategies heavily relies on debt funding. As of Dec. 31, 2024, the company’s debt stood at $7.274 billion, with annual interest expenses of $35.1 million.
Saylor’s firm, on the other hand, expects to be in debt more to cover its Bitcoin purchase, creating potential risks to liquidity. It noted that a significant drop in Bitcoin prices could impact the company’s ability to secure financing, leading to defaults and further financial strain.
You are warned!
“A significant decline in the market value of our bitcoin holdings or a negative shift may create liquidity and credit risks, as such a decline or such shifts may adversely impact our ability to secure sufficient equity or debt financing to service our debt and cash dividend obligations.”
Moreover, the company admitted that Bitcoin’s role as a liquidity source during market turbulence remains unreliable. Bitcoin, unlike traditional financial assets such as stocks and bonds, lacks legal protections. This exposes MicroStrategy’s business to higher risks during volatile market conditions.
The issue of custody can cause further problems. According to the company, current insolvency law does not give clear guidelines for digital assets that are held in custody account. These laws could potentially limit Bitcoin access in case of custodian bankruptcy.
The company’s insurance coverage for its Bitcoin is also insufficient to cover its total holdings, leaving it vulnerable to losses from cyberattacks, key mismanagement, or custodian-related problems.
MicroStrategy acknowledged that the strategy it has developed to focus on Bitcoin is not well-tested under a variety of economic conditions.
Addendum:
“[So], if bitcoin prices were to decrease or our bitcoin strategy otherwise proves unsuccessful, our financial condition, results of operations, and the market price of our class A common stock would be materially adversely impacted.”
The Crypto advisory role
Saylor is open to the idea of a crypto-advisory role within the Donald Trump Administration.
In a Bloomberg Interview, the Bitcoin Bull highlighted his willingness to participate in developing positive digital asset policies to promote growth and develop.
He said:
“I’m always willing to provide thoughts on constructive digital assets policy in confidence or publicly and if I’m asked to serve on some sort of Digital Assets Advisory Council I probably would do so.”
Saylor, however, isn’t the only crypto-stakeholder who wants to collaborate with an incoming Trump administration. The Trump Administration has already made several appointments that are pro-crypto in the last few weeks.
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