Strategy's bitcoin bet takes $14.5 billion hit

Michael Saylor's Bitcoin accumulator Strategy Inc. took a staggering $14.5 billion unrealized loss in the first quarter, largely due to the cryptocurrency's 20% price drop. This is the largest first-quarter decline since 2018.

Struggling to sustain its model

Strategy, which maintains over $50 billion in Bitcoin reserves, adopted new accounting rules last year, forcing it to record the fluctuations in its digital holdings' market value.

As a result, the company's financial statements now swing wildly based on Bitcoin's price movements. The strategy, however, remains to keep buying.

Strategy recently purchased 4,871 Bitcoins for $330 million, with an average cost of $67,700 per coin. The company also reported a $2.42 billion deferred tax benefit in the quarter.

However, the slump in Bitcoin has pulled Strategy's valuation below its average cost, eroding the company's former advantage of issuing new shares to finance more purchases. Now, it's increasingly relying on preferred shares to fund its Bitcoin buying spree, a move that avoids diluting existing shareholders but comes with a fixed obligations.

For this model to remain viable, Bitcoin needs to appreciate faster than Strategy's liabilities grow. Currently, the company holds $2.25 billion in cash, enough to cover interest and distributions for over two years.