The profit is due to the appreciation of the value of Bitcoin over the past year, allowing MicroStrategy to claim tax benefits.
MicroStrategy, an Enterprise Business Intelligence (BI) platform that provides software, cloud computing, and other services to a wide array of clients, also happens to be one of the world’s largest Bitcoin holders, with approximately 140k Bitcoin in reserves.
Out-competing by HODLing
The decision to purchase Bitcoin in bulk was made by then-CEO Michael Saylor in 2020, citing concerns over inflation. According to him, simply HODLing BTC has given his firm an edge over rivals in the BI industry.
“Ultimately, it’s not easy to see what better strategy there might be. We found by simply acquiring and holding Bitcoin we can outperform our peers in the enterprise software business. The regulatory environment for Bitcoin is improving. As capital flows out of the crypto industry, it flows into Bitcoin.”
The above statement seems to be in contradiction with the recent developments in the crypto industry, with spokespeople for behemoths such as Coinbase, Kraken, and private investors all lambasting the U.S. government and its agencies for attempting to enforce regulation through penalties instead of maintaining a discourse with the firms it seeks to regulate.
In The Green After More Than 2 Years
Despite the current uncertainty regarding the regulation of cryptocurrencies in the U.S. and elsewhere, Bitcoin has made a comeback recently, spiking by over 70% over the past quarter.
According to Bloomberg, this has allowed MicroStrategy to turn a profit this quarter. The company’s quarterly report indicated that it had a net income of $461 million in Q1, with firm shares trading at $31.79 at the time this article was written. Revenues were also up by 2.2% over the past quarter, reaching $121 million.
This development is partly due to tax benefits resulting from MicroStrategy’s Bitcoin stash. The company took advantage of an impairment charge – a process used by investors to write off depreciating assets – relating to its Bitcoin holdings that netted it a tax cut of $18.9 million over the past quarter.
MicroStrategy further consolidated its balance sheets by taking advantage of Bitcoin’s price appreciation to repay a loan from Silvergate at a 22% discount.
MicroStrategy repaid its $205M Silvergate loan at a 22% discount. As of 3/23/23, $MSTR acquired an additional ~6,455 bitcoins for ~$150M at an average of ~$23,238 per #bitcoin & held ~138,955 BTC acquired for ~$4.14B at an average of ~$29,817 per bitcoin. https://t.co/ALp9VLkTpt— Michael Saylor(@saylor) March 27, 2023
“We strengthened our capital structure by reducing leverage by fully repaying our bitcoin-backed loan. We also continued to strategically manage our balance sheet through the addition of 7,500 bitcoin in the quarter.”
Due in no small part to Saylor’s confidence in Bitcoin, his company is now reporting profits in a fiscal environment where most of his peers are faltering, as inflation and a possible looming recession dampen investors’ prospects.
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