MicroStrategy's $5.9 billion BTC loss might force the company to sell its holdings

This week, the Securities and Exchange Commission (SEC) made a formal declaration that stablecoins, particularly “covered stablecoins,” are not securities

The Securities and Exchange Commission (SEC) has clarified that certain stablecoins, particularly "covered stablecoins," are not securities and thus do not need to be registered with the SEC.

This statement, which may not be immediately noticeable to most retail crypto traders, could have broader implications for the institutional adoption of stablecoins.

The SEC defines a "covered stablecoin" as being backed by U.S. dollars and/or other low-risk, highly liquid assets, like treasury bills, that allow issuers to meet redemptions on demand. They go on to say that those stablecoins are explicitly different from algorithmic stablecoins, which use an algorithm for supply/demand balancing rather than collateral to maintain their price peg.

The Commission reached this conclusion by extending two tests from two different court cases: Reves v. Ernst & Young and SEC v. W.J. Howey Co. Both tests are frameworks used to determine whether something qualifies as a security. Covered stablecoins didn’t meet the criteria of either test and as a result, the SEC ruled that they fell outside securities laws.

This statement from the SEC might not change much for the average person, but for crypto corporates and legacy financial institutions, it could be significant since it opens the door for digital assets to play a bigger role in the world of banking and finance.

Since the SEC declared that certain stablecoins are not securities, that removes a major legal risk for banks, fintech firms, and payment processors who want to integrate stablecoins into financial services, as a result, this should make it easier for stablecoin issuers to form partnerships with traditional financial institutions, and it clears the path for bank-backed stablecoins or stablecoin-as-a-service offerings in the world of banking and finance.

The Department of Justice (DOJ) is disbanding the National Cryptocurrency Enforcement Team, a unit dedicated to investigating and prosecuting crypto-related crimes.

The news came via a memo from Deputy Attorney General Todd Blanche, who stated, "The Department of Justice is not a digital assets regulator. However, the prior Administration used the Justice Department to pursue a reckless strategy of regulation by prosecution."

According to Blanche, this decision was made to comply with President Donald Trump's January executive order on digital assets, which emphasizes creating clear regulatory frameworks for crypto and stablecoins. While it's unclear how shutting down this unit helps comply with that order, it does clarify what the DOJ won't be doing: regulating crypto markets.

That ambiguity might not be a big deal right now, especially under a friendly administration, but it could become an issue in the future. When the next crypto conflict inevitably occurs, knowing who is actually in charge will matter a lot when it comes time to investigate and prosecute the illicit actors.

This week, MicroStrategy (NASDAQ:MSTR) filed its Form 8-K with the SEC. While these filings are routine for public companies, this one had blockchain and crypto enthusiasts talking because of what it revealed about the company's financial health in relation to its massive BTC holdings.

Three points from the filing standout:(1) The company reported an unrealized loss of $5.91 billion on its digital asset holdings for the quarter ending March 31, 2025. As a result, it expects to post a net loss for that quarter.(2) Due to previous net losses, primarily from digital asset impairment, the company warned that it "may not be able to regain profitability in future periods."(3) And this one really got people talking: the company said it may be forced to sell BTC to meet its financial obligations.

Form 8-Ks require companies to spell out all the possible risks, so this isn't necessarily an emergency. But what caught my attention was how clearly they were writing about how holding BTC has hurt them and how it may continue to hurt them. The company all but admitted that its Bitcoin strategy, the cornerstone of its brand, maybe the very thing that causes the company to unravel.

The filing clarified that MicroStrategy's financial health is deeply tied to BTC's performance. If the digital asset performs poorly or regulatory shifts turn against crypto, the company could face severe consequences, not just in stock price but in its ability to raise capital or continue operating.

Since last year, MicroStrategy has been a central figure in the narrative of institutional interest in Bitcoin. The company, formerly known as Strategy, began buying BTC in 2015 and has since amassed a significant portion of its capital in the digital asset.

This filing is the first time I remember the company mentioning the potential sale of BTC. People often cheer when publicly traded companies buy BTC, but what gets lost in the noise is that these companies always have an exit plan. Nobody's holding BTC for eternity. Whether it's selling when prices hit a target or offloading during a financial crunch like what MicroStrategy is thinking about, there's always a point when the corporate will cash out.