MicroStrategy (MSTR) margin call around the corner; Bitcoin (BTC) falls to $23K – what’s next?

Key Takeaways:

  • MicroStrategy (MSTR) dependency on Bitcoin valuation could land the firm in bankruptcy.
  • BTC approaches the $21,000 mark, which would constitute a margin call for the company.
  • Executives claim to have an uncollateralized BTC cushion to save MicroStrategy.
michael saylor, microstrategy margin call, MSTR, Bitcoin, BTC,
image from medium.com

YEREVAN (CoinChapter.com) – Business intelligence firm MicroStrategy (MSTR) took a hit alongside Bitcoin (BTC), which slumped below significant support at $25,500, signaling the looming margin call. As a result, MSTR traded at $150 in Monday’s New York session, after a 70% quarter-to-date bloodbath.

MSTR stock price depreciates 70% quarter-to-date. Source: TradingView.com
MSTR stock price depreciates 70% quarter-to-date. Source: TradingView.com

Also read: Bitcoin sell-off puts MicroStrategy (MSTR) in danger of bankruptcy. Here’s why.

MicroStrategy dependent on Bitcoin valuation

As CoinChapter previously reported, MicroStrategy chose to make Bitcoin a part of its core business strategy in Aug. 2020. As a result, the company continuously acquired hefty batches of BTC, bringing its total Bitcoin reserve to $5.8 billion as of May 2022.

Hence, MicroStrategy’s stock has traded in tandem with the alpha crypto since 2021, as evident from the chart below. However, the correlation underscored MSTR’s vulnerability to Bitcoin price swings. The company’s large BTC reserve has made MSTR essentially a Bitcoin-linked stock.

MicroStrategy stok (MSTR) in correlation wiht Bitcoin (BTC). Source: TradingViewcom
MicroStrategy stock (MSTR) in correlation with Bitcoin (BTC). Source: TradingView.com

Also read: MicroStrategy will offer its employees an option to invest in Bitcoin (BTC) for their 401K savings plan.

Meanwhile, the alpha crypto traded at $23,500 on June 14, alarmingly close to MicroStrategy’s possible margin call.

Why the 21K BTC margin call?

The potential harm for MicroStrategy would stretch beyond an oversold stock price. The company could face bankruptcy. In detail, MicroStrategy has been raising debt and equity increasingly, with the sole purpose of boosting its BTC holding. In other words, it borrowed funds against Bitcoin to buy more Bitcoin.

Notably, the firm took out a $205 million Bitcoin-collateralized loan from Silvergate Bank on March 30, when MSTR traded at $520 a share, or nearly thrice higher than the current price.

Also read: MicroStrategy buys Bitcoin worth $190 million to push total BTC holdings above $4B — MSTR consolidates.

Phong Le, the company’s Chief Financial Officer, revealed his position on a possible margin call in the Q1 2022 earnings call. The executive asserted that the said margin call would be initiated once Bitcoin touches the $21,000 mark, reflecting a 50% margin.

In other words, if BTC falls to the said price, MicroStrategy would be “compelled” to pay up its long-term debt obligation. That’s where the company will likely face bankruptcy, as modest revenue of $500 million would have to cover a $2.4 billion debt.

We took out the loan at 25% LTV [loan-to-value]. The margin call occurs at 50% LTV. So essentially, Bitcoin needs to cut in half or around $21,000 before we have a margin call.

stated Le.

Will MicroStrategy recover?

Earlier, Saylor and Le proposed using the company’s uncollateralized BTC holdings to avoid the margin call. These unencumbered coins add up to 95,643 BTC out of the company’s total holdings of 129,218 Bitcoin. However, the confident claim was made after the Q1 report, when BTC still held well above $45,000, thus MicroStrategy margin call possibly appeared as less of a problem.

Meanwhile, Saylor’s unconditional love for Bitcoin didn’t fade. The CEO still tweeted BTC was the only reliable investment in the turbulent economic conditions. He added that the “best investment strategy is to HODL scarce, desirable property you can afford to maintain,” tagging Bitcoin.

Also read: Bitcoin (BTC) price plunges below $25K following headwinds from growing inflation — what’s ahead?

One follower seized the moment to illustrate their thoughts on where Saylor’s BTC-gobbling strategy could lead.

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