Bbusiness analytics company MicroStrategy (NASDAQ: MSTR) converted substantially all of its cash reserves into Bitcoin (CRYPTO: BTC) tokens. You might expect CEO Michael Saylor to be less enthusiastic about the idea, as Bitcoin prices fell almost 60% in the first half of 2022, but the company is still buying more digital coins.
Is MicroStrategy setting the wrong example here — or should you follow suit?
According to official documents filed with the Securities and Exchange Commission (SEC), MicroStrategy purchased another 480 Bitcoins between May 3 and June 28. The average price per coin was $20,817 and the total investment was $9.99 million.
The company now holds 129,699 bitcoins in its digital vaults, worth around $2.50 billion at current prices.
Adding 480 coins to this massive hoard is a 0.4% increase, so it wasn’t exactly a gigantic investment. However, putting more money into Bitcoin as the price chart dips still shows that MicroStrategy and Saylor expect Bitcoin investing to return to profitability.
Saylor is an established Bitcoin influencer
Saylor is extremely optimistic about Bitcoin’s long-term prospects as an investment and ultimately as the currency of the future. These opinions aren’t exactly hot news, as Saylor has been spreading the word for a few years now. When Elon Musk is You’re here (NASDAQ: TSLA) bought $1.5 billion worth of Bitcoin last summer, Saylor appears to have been instrumental in inspiring this investment.
And this bitcoin hoard is already absolutely huge. The cryptocurrency investment fund Grayscale Bitcoin Trust (OTC: GBTC) manages a portfolio of nearly 655,000 Bitcoins, but no other public company comes close to MicroStrategy’s huge Bitcoin investment, not even the leading Bitcoin miner digital marathon (NASDAQ: MARA)whose wallet contained only 9,941 bitcoins at the beginning of June.
So maybe we shouldn’t read too much about MicroStrategy’s modest increase in Bitcoin holdings. If Bitcoin prices crash to zero, Saylor looks set to go down with the ship. In other words, this small series of Bitcoin investments should not inspire anyone to bet their savings on the digital currency.
Don’t get carried away with the idea of Bitcoin
The cryptocurrency market is still in its infancy. The internal market does not yet have a proper regulatory framework and governments around the world are struggling with their specific approaches to this unknown asset class.
And the risks are real. It cost MicroStrategy $3.98 billion to assemble its Bitcoin holdings, which are now worth just $2.5 billion. Given the decline in asset prices, the company has posted massive losses over the past two quarters. If Bitcoin goes down much further, creditors will eventually want MicroStrategy to repay the loans they took out to fund some of its Bitcoin purchases.
So I understand if you believe in Michael Saylor’s view of Bitcoin as a great long-term investment, leading you to invest a small portion of your own portfolio in this digital currency. However, a lot of things can still go wrong and I don’t think you should get into bitcoin like MicroStrategy did.
It would be best if your Bitcoin exposure remained low for the time being, reflecting the speculative nature of this exciting but dangerous investment vehicle. Patience is a virtue, especially in volatile and risky markets like the current cryptocurrency industry.
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Anders Bylund has positions in Bitcoin and Tesla. The Motley Fool has posts and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.