Microstrategy Could Get a Margin Call if Bitcoin Drops to $21k, But the Company is Prepared 12

Microstrategy Could Get a Margin Call if Bitcoin Drops to $21k, But the Company is Prepared

Summary:

  • Michael Saylor’s Microstrategy could face a margin call on its debt if Bitcoin drops below $21k
  • However, the company is prepared to add funding to their existing position
  • Microstrategy recently secured a loan of $205 million in late March, payable monthly beginning this month till March 2025
  • Microstrategy now holds 129,218 Bitcoins with a cumulative impairment loss of $1.071 billion

The business intelligence and analytics company of Microstrategy could be set to receive a margin call on its debt if Bitcoin (BTC) drops below $21k. This is according to the company’s CFO, Phong Le, during the company’s most recent earnings call.

Mr. Le was responding to a question by Microstrategy’s Senior Director, Treasury and Investor Relations, Shirish Jajodia, who asked how far Bitcoin had to fall for the company to receive a margin call on its $205 million loan from Sivergate Bank. Mr. Le responded that BTC had to drop to $21k, but the company was ready to contribute more to its existing position. He said:

We took out the loan primarily so that we could continue to invest more in Bitcoin and also really to create a market for a Bitcoin-backed term loan…

As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV, the margin call occurs 50% LTV. So essentially, Bitcoin needs to cut in half or around $21,000 before we’d have a margin call.

That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there, so we don’t ever get into a situation of March call also.

Microstrategy’s $205 Million Loan Matures in March 2025

The loan in question from Silvergate bank is worth $205 million and bears interest at a ‘floating rate equal to the Secured Overnight Financing Rate 30 Day Average as published by the Federal Reserve Bank of New York’s website plus 3.70%, with a floor of 3.75%’

It is also payable monthly in arrears beginning May 2022 and will mature in March 2025 unless earlier repaid per its terms.

Microstrategy Owns 129,218 Bitcoin with a Cumulative Impairment loss of $1.071 Billion

At the time of writing, Microstrategy owns 129,218 Bitcoin. According to the company’s first-quarter financial results of 2022, the company’s holdings of Bitcoin have a ‘cumulative impairment losses of $1.071 billion since acquisition and an average carrying amount per bitcoin of approximately $22,409.’

[Feature image courtesy of Michael Saylor on Twitter]