The company's stock price plummeted 24% overnight after betting heavily on Bitcoin but was "backlashed" and faced the risk of "explosion"

Wall Street Insights mentioned earlier in an article that according to CryptoCompare data compiled by the Financial Times, the market value of the top 500 digital currencies has fallen by 50% from the record high reached in November 2021 to $1.6 trillion. Bitcoin, the world's largest digital currency, also halved during this period, and the third-largest stablecoin of the cryptocurrency lost more than 30% of its market value.

Given the Fed's tightening policy, it may not be surprising that the price of risky asset Bitcoin continues to fall. However, as the price of Bitcoin continued to fall, the stock price of MicroStrategy, the listed company with the largest number of Bitcoins in the world and the business intelligence company MicroStrategy , plummeted 24% on Monday, reaching its lowest level since 2020. 1.5 percent at $215.62. Since the beginning of the year, the cumulative decline of MicroStrategy has reached more than 60%.

To make matters worse, in the past week, Bitcoin has fallen by 20%, falling below $31,000 and even falling below the $30,000 mark this week, getting closer to the margin call level of MicroStrategy ; Below $21,000, MicroStrategy would be called on its loan deposit, meaning MicroStrategy could be forced to sell some of its bitcoins.

MicroStrategy purchased an additional $215 million worth of bitcoin in the first quarter of this year, at an average purchase price of $44,645 per bitcoin, bringing its total bitcoin holdings to 129,218, the purchase cost is $3.97 billion, or $30,700 per bitcoin.

It's worth noting that MicroStrategy's underlying software business isn't profitable enough to service those debts, so the success of the company's highly leveraged bet on cryptocurrencies is entirely dependent on a rise in the price of bitcoin, which far exceeds its average payment price of 30,700 Dollar.

Comments from the company’s chief financial officer, Phone Le, on the company’s most recent earnings call, would force the company to either put more collateral on the loan or sell some of its Bitcoin holdings. Regarding the issue of bank loan margin calls, Le said:

We make loans at a loan ratio of 25%, and margin calls occur at a loan ratio of 50%. So basically, Bitcoin needs to halve or around $21,000 for us to have a margin call.

MicroStrategy co-founder and CEO Michael Saylor may be one of the most ardent Bitcoin supporters in the world, and he was embraced by fans at the 2022 Bitcoin Conference in Miami, USA. Vividly, when he told people to never sell their cryptocurrencies, Thaler believed that Bitcoin was "freedom" and "generally speaking, the most desirable property in time and space." On the company's strategy, he once said:

We will continue to evaluate opportunities to raise additional capital to execute our Bitcoin strategy.

Saylor not only said but also did, the CEO borrowed heavily from banks to add more cryptocurrencies to his MicroStrategy firm’s balance sheet.

In December, MicroStrategy said it spent about $82.4 million on those bitcoins between Nov. 29 and Dec. 8, at an average price of $57,477. Some of that was bought during the Dec. 4 crash, when bitcoin fell more than 20 percent. While the bitcoin price has recovered since then, it remains well off its recent high of around $69,000. At the time, the company held a total of 122,478 bitcoins at an average cost of $29,861 each.

MicroStrategy’s financial report released last week showed that its first-quarter net loss widened to $130.8 million from $110 million in the same period last year, due to the inclusion of $170.1 million in bitcoin impairment charges. Earlier this year, the SEC pointed out that it was not allowed to remove the impact of wild fluctuations in the price of bitcoin from its performance through the unofficial accounting method previously sold to investors.

In March, MicroStrategy applied for a $205 million bitcoin-backed loan from Silvergate Bank to buy more bitcoin. The total value of Bitcoin held by the software company is now just over $4 billion.

According to the SkyEye data on the chain of Okey Cloud Chain , as of Monday, a total of 43 companies or institutions, including Grayscale Investment, held 1,225,600 bitcoins. Since the Federal Reserve announced the interest rate hike on May 4, it has lost tens of thousands of dollars, which means that the bitcoin held by these institutions and companies has evaporated by more than 12 billion dollars.

The current round of decline of Bitcoin has fallen below the cost price of Bitcoin of many institutions or companies. According to public information, based on the bitcoin price of US$30,800, 12 institutions or companies, including Tesla, currently hold bitcoins that are at a loss. Among them, AKer ASA lost 21.62 million US dollars, Meitu lost 19.75 million US dollars, and Plunwra lost 16.95 million US dollars, ranking the top three. In addition, Tesla holds 40,900 bitcoins, with an average price of $32,000.

Not just institutions, according to bcoin, a third-party data service provider, as of 12:00 on May 10, Beijing time, in the past 24 hours, 271,300 people around the world have lost their positions of US$970 million, including US$262 million in Bitcoin and US$262 million in Ethereum . $220 million.

However, Cathie Wood, founder of ARK Invest, said in an interview with the media that the correlation between cryptocurrencies and traditional assets is increasing, which indicates that the bear market will soon end.

Cryptocurrency as a new asset class should not look like Nasdaq (traditional securities asset class), but it is highly correlated now. You know you're in a bear market, and maybe when everything starts to look alike, it's nearing the end.

In addition, she also said that despite the current market downturn, she still maintains long-term confidence in cryptocurrencies because, like ARK's other investment categories, she believes that cryptocurrencies will grow exponentially with economic and social development. However, an earlier article on Wall Street News pointed out that the net assets of ARK Innovation ETF (ARKK), the flagship fund of "Sister Wood", rose from US$20.12 when it was established in October 2014 to US$45.59 on May 4, 2022. Reached 127%. But with the S&P 500 gaining 136% over the same period, the so-called excess returns have evaporated, according to data compiled by Bloomberg.