MicroStrategy stopped keeping its reserves in US dollars by converting any inflowing money into BTC. The firm has never sold much of its holdings, hoping the value of Bitcoin to increase in the long term.
MicroStrategy recently filed a document with the SEC to report that it had invested an additional USD 6 million in Bitcoin. The document states the company bought nearly 301 BTC, at around USD 19,851 per unit, between August 2nd and September 19th.
Since mid-June, MicroStrategy has made new purchases with its excess money, particularly when the price has fluctuated below USD 20,000. The firm no longer holds US dollars or any other fiat currency but Bitcoin in its reserves.
It now holds around 130,000 BTC, acquired at about USD 3.98 billion or an average of USD 30,639 per unit. Considering the company started buying BTC in August 2020 at around USD 12,000, this is a high average purchase price.
Their Strategy May Generate Profits in the Long Term
When MicroStrategy stopped keeping its reserves in US dollars, it chose to convert any inflowing money into BTC. According to its strategy, the company sets some of its profits aside to convert them into Bitcoin.
Over the last two years, MicroStrategy has used around USD 3.98 billion to set around 130,000 BTC aside for its reserves. Since its holdings amount to approximately USD 2.46 million, its strategy has caused it to lose USD 1,510 million, equivalent to 38%.
MicroStrategy has never sold much of the purchased BTC as it seems not to need it due to its constant production of cash supply. They may hope the market value of Bitcoin increases, which would make this strategy profitable in the long term.
Given the volatility in the price of BTC in the short and long terms, the strategy may eventually make profits or losses. The common mistake when interpreting the purchases by MicroStrategy purchases is to view them as speculations.
When buying, speculators only sell in the shortest possible time, expecting to make the highest profit. However, MicroStrategy accumulates reserves by converting the US dollars it sets aside into Bitcoin.
MicroStrategy Stops Maintaining Its Reserves in US Dollars
MicroStrategy has abandoned its reserves in US dollars by keeping them only in BTC. However, a happy medium may allow it to invest a small part of its capital in Bitcoin while keeping most of it in fiat money.
In theory, better results are possible by avoiding buying when the price is high during significant bullish runs. The Bitcoin price has always followed a big bullish trend preceding a bearish year, a rebound year, and a sideways year.
Although MicroStrategy does not always buy similar amounts, it converts US dollars into BTC without worrying much about individual purchase prices. In the end, the approximately 130,000 BTC purchased dropped to an average of just above USD 30,000 per unit. That is higher than the current price but is probably in line with the bearish market average.
If the difficulty in the crypto markets continues, MicroStrategy cannot buy Bitcoin at a lower price in the coming months. In addition, if the bearish market gives way to a rebound year, that strategy that seems like a losing one might become a winning one.
By Alexander Salazar
