Microstrategy has acquired around $2 billion in debt to purchase Bitcoins. It also acquired a $200M BTC-backed loan provided by Silvergate bank to purchase more Bitcoins. Microstrategy has reported that for the loan, it will face a margin call at $21k, and in that case, it might have to sell some of its Bitcoins. This is a risk management strategy employed by loan providers to prevent losses.
Microstrategy might have to sell its Bitcoins
Microstrategy has over $5 billion in Bitcoin, which is near 129,000 Bitcoins. They have been able to purchase these with around $2 billion in debt. The current average buy price of the company is $30,700, which means they are still more than 30% in net profits. However, the risk of a potential selling remains if the price of BTC dips to $21k. This was reported by the company’s CFO, Phong Le, in their Q1 earnings call. Phong quoted the $21k price when asked, “how far does bitcoin have to fall for MicroStrategy to receive a margin call on the Silvergate loan?”
However, it will not come to that probably as the company can easily add more collateral if the price of Bitcoin does drop to that level. The company just needs to ensure that they prevent the collateral from going from 50% loan to value. We can rest assured that Michale Saylor will stick to his words that they will never sell their holdings.
Problems ahead for the company
Microstrategy’s billion-dollar bet on Bitcoin might make or break the company. Their business has declined a lot, and the company’s share prices are much below their all-time high. In fact, their market cap is at $4.4 billion, which is even lower than the $5 billion in BTC they have on the balance sheet. Most investors are unable to handle the enormous exposure to BTC and the debt that the company has. If Bitcoin does well, all these problems might fade away in the future. However, if it crashes for any reason, the company will find itself in a huge problem. And in any case, if they are forced to sell their coins, it will impact the market negatively.
Do you think Microstrategy will ever sell its Bitcoins, or will their huge debt push them to do so? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.