MicroStrategy Inc, the largest corporate holder of Bitcoin, is reportedly sitting on $1.8 billion in unrealized losses from its purchases.

The Tysons Corner, Virginia-based software company and its subsidiaries hold roughly 130,000 Bitcoin, worth around $2.2 billion at the current price. The Bitcoins were bought at an aggregate price of almost $4 billion, with each Bitcoin costing around $30,369. This now places the company $1.8 billion in the red.

Can MicroStrategy continue hodling?

Executive chairman Michael Saylor had previously said the company would never sell its Bitcoin. The refusal to sell means that the company sits on substantial paper losses. Additionally, the company recorded a $917.8 million impairment charge after it reported losses related to the decline in the price of Bitcoin earlier this year.

MicroStrategy classifies Bitcoin as an intangible asset, which means that the company must permanently mark down any drop in the asset’s value. If it chooses to sell its Bitcoin, it must report capital gains tax to the Internal Revenue Service.

Saylor stepped down as CEO of MicroStrategy in August 2022 to focus on the company’s Bitcoin strategy after it reported $1 billion in losses. Since then, the company splashed $6 million in excess cash on 301 Bitcoins in September 2022. Its aggregate purchase of 301 Bitcoins is already underwater, as the average Bitcoin price has fallen almost 15% since then.

The company started buying Bitcoin in 2020. CEO Michael Saylor was adamant that the cryptocurrency was a lower-risk asset than cash or gold.

“In an expansionary, monetary environment, you want scarce assets,” Saylor told Bloomberg in February 2021. “The scarcest asset in the world is Bitcoin. It’s digital gold.”

Are signs of a margin call in sight?

In June 2022, Saylor denied that MicroStrategy received a margin call for a $205 million bitcoin-collateralized loan taken with Silvergate Capital. A margin call occurs when an investor borrows money to trade that is multiple of an initial amount called margin. When the margin’s value falls below a certain threshold, the investor must pay additional funds to keep the trade open. 

Saylor said that the company had enough Bitcoin to keep the loan collateralized unless the Bitcoin price fell below $3,500.

A clear regulatory path needed

Speaking with CNBC on Nov. 10, 2022, Saylor said that the recent collapse of FTX is both a boon for Bitcoin and devastating to the cryptocurrency industry. Unlike tokens on exchanges, Bitcoin is a commodity that can be self-custodied, he argued.

He believes regulators must provide clear guidance on how to “register a digital security, a digital currency, a digital token and your digital exchange.”

At $16,856 per Bitcoin, the price is higher than MicroStrategy’s first Bitcoin purchase in 2020.

At the time, the company bought 21,454 BTC at around $11,652 per Bitcoin.