Michael Saylor, CEO of MicroStrategy and an outspoken Bitcoin advocate, is confident that his company’s BTC holdings will more than cover a potential margin call on Bitcoin-backed loans.
The American business intelligence software giant made headlines in 2021 for a series of significant investments in Bitcoin. Saylor was one of the driving forces behind MicroStrategy’s decision to convert much of its treasury from cash to BTC.
Global markets have suffered significant losses in early May and Microstrategy shares were the exception. MSTR has seen its value drop by 24% and the price of Bitcoin has also plummeted considerably along with the broader cryptocurrency market.
This is cause for concern, as the company’s subsidiary MacroStrategy took a $205 million loan from Silvergate Bank in March 2022, with a portion of MicroStrategy’s bitcoins used as debt collateral. MicroStrategy then used the proceeds to continue its BTC acquisition strategy.
If the price of BTC drops too low, this would trigger a margin call on the Silvergate loan due to the falling value of the asset held up as collateral. It was a main topic of the company’s May earnings call – with the company’s CFO, Phone Le, confirming that he would have to sell some Bitcoin if the price fell below $21,000.
MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. $MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral. See slides 11-12 in Q1 2022 presentation. #HODLhttps://t.co/9WHsIB6Usx
— Michael Saylorâš¡ï¸ (@saylor) May 10, 2022
Saylor took to Twitter on May 10 to reassure investors of the ability to the company to cover its debt, as MacroStrategy’s $205 million loan requires $410 million of collateral. With 115,109 BTC as additional collateral available to cover the loan, Saylor noted that the value of Bitcoin would have to drop below $3,562 for the company to run out of BTC to back the loan.
In August 2021, the company caused a stir by its decision to allocate a considerable part of its capital directly to accumulate Bitcoin. Its initial investment of $250 million was made after it had fulfilled obligations to shareholders, giving the company 21,454 BTC for its treasury reserves.
At the time, Saylor indicated that the investment was driven for the company’s belief that Bitcoin is “a reliable store of value and an attractive investment asset with more potential for long-term appreciation than holding cash.”
Perhaps more emphatic was Saylor’s insistence that Bitcoin was a superior investment to holding fiat currency and that the company had made Bitcoin its main asset in its treasury reserve strategy.
MicroStrategy made another significant Bitcoin acquisition in September 2020, adding an additional 16,796 bitcoins at an aggregate purchase price of $175 million. The firm continued to acquire BTC from there, even leading to CitiBank taking the decision to downgrade MicroStrategy stock from “neutral” to “sell” for its decision to make Bitcoin its primary treasury reserve asset.
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