MicroStrategy’s debts start coming due as Bitcoin slides below $21K

YEREVAN (CoinChapter.com) – Business intelligence firm MicroStrategy (MSTR) faced a possible bankruptcy, while Bitcoin (BTC) reclaimed the $20,000 support on June 20. The root of the company’s possible demise lies with the founder Michael Saylor’s unusual, debt-funded bet on holding the flagship cryptocurrency.

MicroStrategy in Bitcoin-induced pit

The company has lost over $1 billion after its entanglement with Bitcoin kicked off in Aug. 2020.

In detail, the company has over 129,000 BTC on its balance sheets. As a result of Bitcoin volatility in the previous months, MicroStrategy lost 70% of its market value year-to-date and was worth $4.2 billion on Jun. 15, including net debt.

A further dive into the margin call on the firm’s debt would explain its dire situation. As CoinChapter previously reported, the company could face bankruptcy after increasingly raising debt and equity to boost 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 Mar. 30, when MSTR traded at $520 a share, or nearly thrice higher than the current price.

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

Phong Le, the company’s Chief Financial Officer, asserted that a 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.

Bitcoin did, in fact, drop below the said level, which puts MicroStrategy in a difficult position.

Will the firm make it out?

Earlier, Saylor and Le proposed using the company’s $2 billion of unencumbered Bitcoin holdings to avoid the margin call. These uncollateralized coins add up to 95,643 BTC out of the company’s total holdings of 129,218 Bitcoin.

Moreover, Saylos stuck to his guns and defended the BTC-gobbling strategy his company adopted. In an interview with Bloomberg TV, the CEO commented he has “no regrets” over the losses. Saylor added that MicroStrategy is “positioned well for when the market turns around” and that “cash is still trash.”

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

We did a lot of backtesting. So I’ve gone back and looked at the numbers. Since our $250 million bid on Bitcoin [on Aug. 2020], the BTC price is up 72%. […] The bottom line is the Bitcoin strategy is 10x better than any other alternative.

said the CEO.

Saylor also called Bitcoin a “scarce digital commodity that gets technically better every year.” But as Bitcoin slid to 1.5 year-lows, with the bullish “10-year outlook,” help the company fight off creditors?

Some experts believe that the safe choice for MicroStrategy would be to sell the firm’s Bitcoin holdings. It would help the firm repay borrowings early and focus all attention on its software business. However, Saylor disagrees. In the interview presented above, he asserted that if MicroStrategy sells its Bitcoin, it wouldn’t have “anything,” which is not a viable strategy.