The cryptocurrency market has plummeted. Are mainstream institutions that bought Bitcoin still profitable?

This article was published in Planet Daily, author: Qin Xiaofeng.

Recently, the cryptocurrency market has experienced a significant correction.

Bitcoin has consecutively fallen below the $40,000 and $30,000 thresholds, while the prices of other cryptocurrencies have basically halved, with "cryptocurrency market crash" trending on Weibo. Various negative news, both true and false, has been widely circulated in the community, further exacerbating investors' panic.

Although there has been a short-term pullback, investors can't help but wonder: has the bull market really come to an end?

Since this round of the bull market has been primarily driven by institutional investors, Odaily Planet Daily has decided to study the cost of institutional Bitcoin holdings to help a wide range of investors better assess the market situation.

According to reports from CCTV Finance, there are currently 22 publicly listed companies globally holding Bitcoin, collectively owning over 180,000 Bitcoins, with a total market value exceeding $9.84 billion. Given that more than half of these companies hold fewer than 500 BTC and have not disclosed their holding costs (such as Bitfarms, Riot Blockchain, and other mining companies), this article focuses on 8 publicly listed companies that have directly purchased BTC from the secondary market as analysis subjects, with the statistical results shown below:

From the statistical results: among the eight companies, Galaxy Digital has the lowest average holding cost at only $8,163; the later entrants Nexon, Aker ASA, and Meitu have relatively high costs, reaching $50,000. The average Bitcoin holding cost for the eight companies is $26,029, which is not far from the recent market low of $29,000, seemingly indicating that the market may have found a short-term bottom. Especially considering that large companies like Tesla will face significant losses if they sell below $35,000, the market is expected to recover in the future.

The specific details of each company are as follows:

MicroStrategy

MicroStrategy (NASDAQ: MSTR) is one of the most prominent publicly listed companies in this round of "institutional bull."

MicroStrategy is a company that provides business intelligence (BI), mobile software, and cloud-based services. Its main business analysis competitors include SAP AG Business Objects, IBM Cognos, and Oracle Corporation's BI platform. MicroStrategy's total revenue for 2020 was $480 million, and its current market value is $4.6 billion.

On August 12, 2020, MicroStrategy announced that it had officially adopted Bitcoin (BTC) as its primary reserve asset.

In the following months, MicroStrategy began a frenzied buying spree. According to its Q1 financial report this year, as of March 31, 2021, MicroStrategy held a total of 91,579 Bitcoins, with a book value of digital assets (composed solely of Bitcoin) amounting to $1.947 billion. In the second quarter, MicroStrategy purchased a total of 500 BTC on May 13 and 18.

As of May 18, MicroStrategy held a total of 92,079 Bitcoins, ranking first among all publicly listed companies, with a cost of approximately $2.251 billion, and an average price of $24,450 per BTC (having purchased a large amount of low-priced BTC last year, which spread out the cost).

Previously, MicroStrategy's CEO Michael Saylor stated that the entity he controls has accumulated 111,000 Bitcoins without selling a single satoshi. This total includes MicroStrategy's 92,079 BTC and may also include Saylor's personal Bitcoin reserves.

Tesla

Tesla CEO Elon Musk has been a significant player in the cryptocurrency market, capable of turning the tide with a single tweet, causing Bitcoin to rise or fall by tens of thousands of dollars, and making Doge and SHIB soar multiple times.

This year, Tesla made two major moves that significantly impacted the cryptocurrency market.

On February 8, Tesla announced in a filing with the U.S. Securities and Exchange Commission (SEC) that the company planned to purchase $1.5 billion worth of Bitcoin. Following this news, Bitcoin surged from $38,800 to as high as $48,200 on the same day, breaking its historical high once again.

On March 24, Tesla's official website announced support for Bitcoin payments, causing Bitcoin to rise again by over 10% that day, making Tesla the first car company in history to support Bitcoin for vehicle purchases.

However, Musk soon "reneged" on his promise. On May 12, Musk announced on Twitter that Tesla would suspend its plan to accept Bitcoin for car payments, citing "environmental concerns" as the reason. "We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the most severe emissions of all fuels."

Less than two hours after this tweet, Bitcoin's price plummeted from $54,819 to $45,700, marking the lowest point since March 1.

Next, we return to the core question: what is Tesla's Bitcoin holding cost? Since its financial report did not directly disclose the specific amount, it adds a layer of mystery, but we can still roughly calculate it.

The Q1 financial report shows that Tesla holds $1.331 billion in "digital currency." According to common accounting rules, digital currencies are classified as "indefinite intangible assets." If, at the end of a quarter, the price of Bitcoin is higher than the price at which the company purchased it, the holder cannot show this appreciation on the financial report; the holding's value must still be shown as the amount the company initially paid, i.e., the "book value." In other words, this $1.331 billion represents Tesla's remaining BTC holding cost. In other words, Tesla sold a portion of its Bitcoin in Q1 (that portion's holding cost was $169 million).

The financial report also shows that Tesla generated $272 million in revenue from selling Bitcoin (with a net profit of $101 million), with the cost accounting for 62.14% of the revenue. Tesla's CFO Zach Kirkhorn stated during a conference call that the transactions occurred "in late March," when the average price of Bitcoin was $55,100. Thus, we can backtrack to find Tesla's average Bitcoin holding cost to be $55,100 * 62.14% = $34,239, which aligns with Bitcoin's average price from late January to February. Currently, Tesla still holds 38,873 Bitcoins.

On May 17, Musk tweeted that "Tesla has not sold any Bitcoin." However, based on the financial report, this statement seems somewhat untenable.

Meitu

As a well-known national technology company, Meitu's connection to the cryptocurrency market can be traced back to the Meitu blockchain (BEC) in 2018. This year, Meitu has returned.

On March 7, Meitu announced that the group purchased 15,000 units of Ether and 379.1214267 units of Bitcoin in public market transactions on March 5, with the total prices for these two cryptocurrencies being approximately $22.1 million and $17.9 million, respectively.

Meitu's founder Cai Wensheng posted on social media stating, "Meitu continues to lay out its blockchain strategy, and this time, the purchase of ETH and BTC digital currencies serves as a value reserve for long-term blockchain development." He noted that Meitu is the first Hong Kong-listed company to purchase BTC digital currency and also the first publicly listed company globally to use ETH as a monetary value reserve.

On March 17, Meitu announced again that its wholly-owned subsidiary Miracle Vision further purchased 386.08 units of Bitcoin, with a total price of approximately $21.6 million; and 16,000 units of Ether, with a total price of approximately $28.4 million.

On the evening of April 8, Meitu announced again that its wholly-owned subsidiary Meitu Hong Kong purchased 175.67798279 units of Bitcoin, with a total price of approximately $10 million.

Based on the above data, Odaily Planet Daily calculated that Meitu has invested a total of $49.5 million to purchase 940.89 BTC, with an average holding cost of $52,610. At the current price of $35,000, Meitu is facing an unrealized loss of 33%, approximately $16.33 million.

Galaxy Digital

As the "Goldman Sachs of the cryptocurrency market," Galaxy Digital has always been well-known. The founder of Galaxy Digital, Michael Novogratz, worked at Goldman Sachs for 11 years and served as a partner.

Galaxy Digital was officially established in November 2017; in May 2018, Galaxy Digital merged with Canadian company First Coin Capital Corp. to form a limited partnership, Galaxy Digital Holdings LP, which later became the main operating entity of Galaxy Digital; in August 2018, Galaxy Digital acquired the Toronto Venture Exchange-listed pharmaceutical company Bradmer Pharmaceuticals Inc. and renamed it Galaxy Digital Holdings Ltd., achieving a reverse merger listing.

Galaxy Digital's main businesses include four areas: Asset Management, Principal Investment, Trading, and Advisory Service. Notable investment cases include Galaxy Digital's investments in Block.one (the EOS development team) and the lending platform BlockFi.

In the June 2020 financial report, Galaxy Digital held 14,651 BTC, with a fair value of $1.338 billion and an average price of $9,138; in the latest Q1 financial report, Galaxy Digital's latest balance sheet shows it owns 16,402 Bitcoins, an increase in Bitcoin quantity. In the report, Galaxy Digital explained that the increase in Bitcoin holdings mainly comes from non-controlling equity donations to the Bitcoin fund, which can be understood as Galaxy Digital's external investment returns. Therefore, its average cost has further decreased to $8,163.

Marathon Patent Group

Marathon Patent Group (NASDAQ: MARA) was founded in 2010 and changed its name in 2013. The company is a digital asset technology company focused on cryptocurrency mining. They purchase mining machines and have established a data center in Quebec, Canada for mining.

In 2017, Marathon was listed on the NASDAQ in the United States, and at its peak that year, its market value was only $50 million; over the past year, due to the rise in cryptocurrency values, it has increased more than 40 times, currently reaching $2.177 billion.

According to official announcements, as of May 6, 2021, Marathon holds approximately 5,324 Bitcoins, which consist of two parts: mining and secondary market purchases. Among them, Marathon purchased 4,812.66 BTC in January of this year at an average price of $31,168, with a total cost of $150 million. Based on the current average price of $35,000, the return rate is 12.3%.

Square

As early as 2018, Square's mobile payment service Cash App launched Bitcoin trading, allowing users to buy and sell Bitcoin.

Square (NASDAQ: SQ) is a U.S. mobile payment company founded by Jack Dorsey (one of the co-founders of Twitter). Square users can use the mobile card reader provided by Square in conjunction with their smartphones to make payments anywhere with any network status through the app, allowing consumers and merchants to make payments and receive payments anywhere while saving corresponding consumption information, significantly lowering the technical threshold and hardware requirements for card payments. Currently, Square's market value is $93.3 billion.

On October 10, 2020, Square announced that it had purchased 4,709 Bitcoins, with a total value of approximately $50 million. On February 24, 2021, Square again purchased approximately 3,318 Bitcoins for $170 million. Thus, Square holds a total of 8,027 BTC, with a total cost of $220 million, and an average holding cost of $27,407 per BTC.

Square's CFO Amrita Ahuja stated, "Bitcoin has the potential to become a more widely used currency in the future, and as its utilization continues to grow, we intend to learn and participate in a more compliant manner. This investment is a key step towards building a more inclusive future product for our company."

Due to the recent "Bitcoin is not environmentally friendly" argument led by Musk, Square's plans for further Bitcoin purchases have also been hindered. Amrita Ahuja stated that Square currently has no plans to purchase more Bitcoin, emphasizing that Bitcoin's carbon footprint must be addressed and urging broader adoption of green energy.

Nexon

If you have played games like KartRider or Dungeon Fighter Online, you must have heard of the South Korean gaming giant Nexon.

Founded in 1994, the company currently has over 60 games in more than 190 countries/regions. Nexon went public on the Tokyo Stock Exchange in December 2011 and was included in the "Nikkei 400" index in 2015; by 2020, Nexon was included in the "Nikkei 225" index. Currently, Nexon's market value is approximately $71 million.

On April 27, 2021, Nexon announced that it had purchased 1,717 Bitcoins for approximately $100 million, at an average price of $58,226.

Nexon CEO Owen Mahoney explained, "Our purchase of Bitcoin is a strategic arrangement that protects shareholder value and maintains the purchasing power of our cash assets. In the current economic environment, we believe Bitcoin can provide long-term stability and liquidity while preserving cash value for future investments."

Aker ASA

Aker ASA is a Norwegian holding company with a market value of $6 billion, primarily engaged in offshore fishing, construction, and engineering. Founded in 2004 and headquartered in Oslo, Norway, its name comes from the former Akers mekaniske Verksted, which closed in 1982.

In March of this year, Aker ASA announced the establishment of Seetee, dedicated to investing in Bitcoin projects and companies. The company's website states, "Bitcoin is our inventory asset, and our strategy is to Hodl."

Aker ASA initially provided Seetee with 500 million Norwegian kroner (approximately $58 million) in initial capital, and the new company will hold all its liquid funds invested in BTC, having purchased a total of 1,170 BTC at an average cost of $50,085.

Conclusion

This study is based on certain assumptions and may have shortcomings.

Some of the latest data from U.S. companies has not been presented in the charts. For example, recently, U.S. company Mogo Inc. (NASDAQ: MOGO) announced the purchase of 18 BTC at an average price of $33,083… Although these companies are relatively small and their investment amounts are not large, they reflect the increasingly accommodating attitude of traditional financial markets towards Bitcoin and other cryptocurrencies, willing to add them to their balance sheets.

Many small contributions can accumulate into significant outcomes. As more companies join in, forming a strong buying force, the cryptocurrency market will welcome new development opportunities.