MicroStrategy led by CEO Michael Saylor is one of the largest owners of bitcoin (BTC) in the world. The company has billions in bitcoin on its balance sheet and is also traded on the US stock exchange. Investors in MicroStrategy started to worry after the sharp decline in bitcoin prices. However, according to Saylor, the company will only really get into trouble if bitcoin crashes all the way to around $3,000.
Michael Saylor’s Bitcoin Loans
In particular, MicroStrategy’s bitcoin positions bought with a loan could be at risk, or so investors thought. It was therefore rumored that MicroStrategy would be liquidated as bitcoin to drop to $21,000, which is far from being ruled out today.
This is cause for concern as the company’s subsidiary, MacroStrategy, took out a $205 million loan from Silvergate Bank in March 2022, using a portion of MicroStrategy’s bitcoin as collateral for the debt. MicroStrategy then used the proceeds to continue the company’s BTC strategy.
If the price of BTC went too low, it would lead to a margin call on the Silvergate loan as the value of the collateral would fall. This was a central point in the earnings call of the company in May with the company’s CFO, Phone Le, confirmed that the company would have to sell some of the bitcoin if the price of BTC fell below $21,000.
BTC bottom price of $3,500
According to Saylor, however, it is not that simple. He states that MicroStrategy holds more than 115,000 bitcoins that they could provide as collateral in the event that bitcoin drops to $21,000.
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
Only when bitcoin collapses all the way to $3,562 will MicroStrategy really have a problem and will be forced to sell their bitcoin assets. Fortunately, it is not that far yet and the question is whether this scenario is realistic.