Ever since Michael Saylor, an MIT graduate and the cofounder and CEO of the business intelligence firm MicroStrategy whose company began stockpiling the cryptocurrency in August 2020, he has become a hero to the Bitcoin.
The CEO has previously addressed Bitcoin as “freedom,” and “the most universally desirable property in space and time.” Saylor was met by thousands of cheering fans as he instructed the crowd to never sell their crypto at Bitcoin 2022 Miami, the largest Bitcoin event worldwide.
It is reported that the CEO of MicroStrategy is borrowing from banks to add more of the cryptocurrency to his company’s balance sheet.
MicroStrategy added another $215 million worth of Bitcoin at an average purchase price of $44,645 per coin in the first quarter, SEC filings show, bringing its total holdings to 129,218 Bitcoins acquired for $3.97 billion, or $30,700 per coin.
At Bitcoin’s $39,800 price as of 4 p.m. ET on Wednesday, the company’s holdings were worth over $5.1 billion. The company’s market cap, on the other hand, is roughly $4 billion.
MicroStrategy’s buy-and-hold strategy has been profitable, and according to them, they have no plans to sell its Bitcoin. However with Bitcoin’s price down estimatedly of 35% in the past six months, there might be a change.
MicroStrategy’s stock is down over 20% in the past month and nearly 65% from its February 2021 all-time high of over $1,000 per share. As a result of its status as a quasi-Bitcoin ETF, coupled with $2.3 billion of debt.
Saylor and company could face one hell of a margin call if Bitcoin’s value continues to fall.
On Tuesday, MicroStrategy’s CFO Phong Le explained in the company’s first-quarter earnings call that if Bitcoin’s price falls around 50% from current levels or hits below $21,000, it will be forced to pay up more cryptocurrency to back its $205 million Bitcoin-collateralized loan with Silvergate Bank that was used to buy Bitcoin in the first place.
“We took out the loan at a 25% LTV; the margin call occurs at 50% LTV,” Le said. “So essentially, Bitcoin needs to cut in half, or around $21,000, before we’d have a margin call.”
The CFO noted that MicroStrategy still holds “quite a bit” of uncollateralized Bitcoin that it could use to answer any potential margin call, however.
“As you can see, we mentioned previously we have quite a bit of uncollateralized Bitcoin,” Le said. “So we have more that we could contribute in the case that we have a lot of downward volatility. But again, we’re talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributors. So I think we’re in a pretty comfortable place where we are right now.”
Still, it’s risky to take a loan collateralized by Bitcoin to buy more Bitcoin. MicroStrategy would be put in a tough spot if the world’s leading cryptocurrency continues to fall.