Billionaires Elon Musk and Michael Saylor shortly are going to be in sharp focus. The first assessments of the potential losses that their big bets on bitcoin have sustained is approaching.
Through the companies they lead, Tesla (TSLA) for Musk and MicroStrategy (MSTR) for Saylor, they have bet on the king of cryptocurrencies. If this risky bet paid off in 2021, a year marked by cryptomania, it now seems to have turned sour.
Indeed, the cryptocurrency market has lost more than $2 trillion since it touched its historical record of $3 trillion last November. The crypto market is valued at just $900 billion at last check, according to data firm CoinGecko.
Almost all cryptocurrencies are going through a bad period. Prices have fallen sharply on fears of a potential recession. In such periods, investors tend to liquidate their positions in all riskier assets, which takes in digital currencies.
The crypto industry is also experiencing a credit crunch, affecting lenders that have committed large sums to the hedge fund Three Arrows Capital, also known as 3AC. Three Arrows invested this money in the Luna coin, which in May collapsed along with its sister token, UST.
Bitcoin prices have fallen 72% to $19,299.74 from their all-time high of $69,044.77 recorded on Nov. 10. Ether, the second digital currency by market value, collapsed 79% to $1,039.36.
Huge Impairment Charges May Be Ahead
This price drop means that bitcoins purchased before the crisis began have lost much of their value. This has repercussions for public companies, which must record asset depreciation or impairment charges linked to their cryptocurrencies.
As earnings season is getting under way, we will soon learn the extent of the damage the balance sheets of these companies incurred during the so-called crypto winter.
The first company up is Tesla: The Austin manufacturer of premium electric vehicles reports its second-quarter results on July 20.
In February 2021, Elon Musk's group said it had purchased 43,200 bitcoins for a total value of $1.5 billion. According to Bitcoin Treasuries, the company's bitcoin portfolio is down to just $829 million at last check. Tesla bitcoins thus have depreciated by almost $700 million.
Musk recently indicated that he was buying the dogecoin dip and will continue to support the meme coin despite market jolts. He said nothing about bitcoin.
Also closely watched will be the results of software producer MicroStrategy. It's by far the listed company holding the most bitcoin.
According to a recent Securities and Exchange Commission filing, the balance sheet holds 129,699 bitcoins, 480 of which were purchased between May 3 and June 28. The total acquisition price: $3.98 billion. The value of these bitcoins is currently $2.49 billion. Their value has gone down by almost $1.5 billion.
"Take the long view. #Bitcoin," Saylor tweeted on July 12, seeming to say that his faith in digital currency is unwavering. "Bullish on #Bitcoin," he posted the day before.
What Will Dorsey and Novogratz Say?
MicroStrategy implemented its bitcoin strategy in third-quarter 2020, becoming the first established company to add digital currency to its balance sheet.
One of the consequences of this decision is that the group's stock performance substantially reflects the direction of bitcoin's price, up or down.
MicroStrategy shares have lost 46% of their value since the beginning of May, when the crypto winter began to intensify.
The firm must publish its quarterly results between the end of July and the beginning of August.
It will also be interesting to listen to what the fintech Block (SQ), formerly Square, will say. Block, founded and directed by the billionaire Jack Dorsey, holds 8,027 bitcoins bought at $220 million. Their value has also dropped significantly. Block is set to report its earnings on August 4.
And remarks from the billionaire and former banker Mike Novogratz will also be eagerly awaited. His Galaxy Digital Holdings ( (BRPHF) ), which has invested in bitcoin and was exposed to Luna, reports quarterly results in August. Galaxy Digital shares have lost nearly 64% of their value since early May.
