Bitcoin dump and $2B dilution crash MicroStrategy 30%

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—by Protos Staff

Had Donald Trump not accepted Bitcoin Magazine’s invitation to speak at the largest crypto conference of the year, Michael Saylor would have been its headlining keynote speaker.

Fast forward one week and the afterglow has certainly passed. Over this past weekend, Saylor’s bitcoin holding company MicroStrategy crashed — losing over one-quarter of its value.

Two events seemed to cause the crash. First, the price of bitcoin collapsed, shedding 20% of its market capitalization.

MicroStrategy closed Friday’s trading session on the Nasdaq stock exchange at $1,447.99. When the exchange opened for trading this morning, those same shares were worth $1,044.97. This means that MicroStrategy lost 27.8% of its value — roughly $7.37 billion — in one weekend.

Shares have recovered somewhat as of publication time, trimming approximately half of those losses. 

MicroStrategy also recently announced a $2 billion debt offering that will dilute shareholders. Now a common tactic under Saylor’s leadership, MicroStrategy registered a shelf of Class A common stock. Although the issuance will penalize all shareholders with dilution, investors widely expect Saylor to use most of the proceeds of the offering to buy more bitcoin for MicroStrategy’s balance sheet.

MicroStrategy lost 27.8% of its value — around $7.37 billion — in one weekend.

Read more: MicroStrategy owns almost 2% of all circulating bitcoin — now what?

Leveraged bitcoin made MicroStrategy’s crash even worse

The vast majority of MicroStrategy’s value derives from its holdings of 226,500 bitcoin worth $12.3 billion. Investors place further value on shares of MicroStrategy due to the company’s ability to tap debt markets at advantageous interest rates.

Because the company owns bitcoin on margin, its stock is a leveraged play on bitcoin. As of press time, that premium was roughly +49%.

Saylor has not commented besides a customary repetition of his general belief in bitcoin.

Finally, MicroStrategy has announced a 10:1 stock split that will go into effect on Wednesday. Historically, companies believe a cheaper stock price has the psychological effect of convincing investors that the company’s equity is more affordable.

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