MicroStrategy Makes Another Major Bitcoin Purchase Despite Facing Legal Scrutiny

U.S.-based Bitcoin treasury firm Strategy MSTR has made another major Bitcoin BTC/USD purchase even as it faces legal scrutiny over its accounting disclosures.

U.S.-based Bitcoin treasury firm Strategy (NASDAQ: MSTR) has made another major Bitcoin (BTC) purchase even as it faces legal scrutiny over its accounting disclosures.

According to a regulatory filing with the SEC on Friday, Strategy bought 7,390 BTC at an average price of $103,498 per coin for a total of $764.9 million between May 12 and May 18.

This latest tranche brings Strategy’s total Bitcoin holdings to 576,230 BTC, or more than 2.7% of Bitcoin’s fixed 21 million supply.

The latest batch of coins was bought at an average price of $103,498 per coin, while the firm’s average purchase price now stands at $69,726 per BTC, leaving it with an unrealized gain of about $18.8 billion.

However, the company’s aggressive Bitcoin buying spree has come under legal challenge.

A class action lawsuit was filed against Strategy and its executives in the Eastern District of Virginia by law firm Pomerantz LLP.

The suit claims that Strategy and its executives made misleading public statements regarding the company’s financial outlook, particularly following its adoption of new fair value accounting rules (ASU 2023-08) for crypto assets.

According to the plaintiffs, Strategy understated the risks associated with applying the fair value method to its Bitcoin holdings and overemphasized new metrics such as “BTC Yield” and “BTC Gain” while downplaying the actual losses it could incur.

In April, Strategy reported an unrealized loss of $5.91 billion on its Bitcoin holdings under the new accounting treatment, leading to an 8.67% drop in its stock price.

The lawsuit further alleges that Strategy's optimistic projections and failure to disclose material facts concerning the company's financial health misled investors.

As a result of these alleged misstatements and omissions, the plaintiffs allege that Strategy's stock price fell sharply, causing investors to sustain substantial losses.

The class action lawsuit seeks to recover damages for Strategy’s shareholders who purchased the company’s securities between March 1, 2023, and April 27, 2023.

Despite the unfolding lawsuit and reporting Q1 losses, Strategy has continued to raise capital through equity and preferred share offerings as part of its "42/42" capital program to buy more Bitcoin.

The company is aiming to raise $84 billion in capital commitments by 2027 for this purpose, an expansion of its original "21/21" strategy.

However, analysts remain divided on the sustainability of Strategy's high-leverage Bitcoin strategy, especially considering the mismatch between its net asset value and market capitalization, which stands at over $109 billion.

As Strategy faces legal scrutiny and continues its ambitious Bitcoin buying spree, it remains to be seen how these developments will impact the company's overall performance and investment strategy in the long term.