MicroStrategy took the loan in question from Silvergate Capital and used 19,466 BTC as collateral. In a May webcast, MicroStrategy’s President, Phong Le, said BTC plunging beyond $21,000 would trigger a margin call.
A margin call is a situation wherein an investor – in this case, MicroStrategy – has to commit more assets to prevent losses on a trade made with borrowed funds.
BTC briefly plunged below $21,000 on Tuesday, trading as low as $20,816.36 before correcting upwards and closing the day above $22,000. Although BTC only breached $21,000 momentarily, investors got spooked, thinking MicroStrategy would have to sell some of its BTC holdings or liquidate the loan’s collateral if it received a margin call.
At the time of writing, BTC is trading at $20,590.69 after losing 9.69% in the past 24 hours. This price drop revives fears of the company receiving a margin call over its BTC collateralized loan.
MicroStrategy can withstand BTC’s volatility
Assuring investors of its capabilities to handle BTC’s volatility, MicroStrategy emailed Reuters, saying:
We can always contribute additional bitcoins to maintain the required loan-to-value ratio. Even at current prices, we continue to maintain more than sufficient additional unpledged bitcoins to meet our requirements under the loan agreement.
MicroStrategy CEO Michael Saylor also took to Twitter yesterday, reassuring investors that the firm’s BTC strategy can stand the test of time.
— Michael Saylor⚡️ (@saylor) June 14, 2022
Prior to this, the BTC maximalist said MicroStrategy needs to maintain $410 million as collateral for the loan. He added that the company could pledge 115,109 BTC to this cause. Should BTC fall below $3,562, Saylor said MicroStrategy could still post some other collateral.
MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. $MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral. See slides 11-12 in Q1 2022 presentation. #HODLhttps://t.co/9WHsIB6Usx
— Michael Saylor⚡️ (@saylor) May 10, 2022
Saylor remains bullish on BTC despite poor performance
While this week has been catastrophic for the BTC community, Saylor has maintained his ever-optimistic outlook on BTC.
As the crypto markets unraveled on Monday, the MicroStrategy executive tweeted:
In #Bitcoin We Trust.
— Michael Saylor⚡️ (@saylor) June 13, 2022
Apart from its BTC holdings, MicroStrategy’s stock, MSTR, has also taken a significant blow. MSTR recorded a 28% loss – the largest drop since 2017 – in premarket trading on Monday. The stock is down 71.90% year to date.