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Will MicroStrategy face a Bitcoin margin call?

By:
on Jun 15, 2022
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  • MicroStrategy are now down $1.3 billion on their $4 billion Bitcoin investment
  • Fears of a margin call once Bitcoin hit $21K appear unfounded, however
  • Stock remains highly correlated with Bitcoin and is now down 88% from all-time highs

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As you are likely aware if you hold even $1 of crypto, the markets are brutal right now. Ethereum dipped below $1,000 this morning, while Bitcoin is flirting with the $20,000 mark – numbers which are a far cry from what we were seeing throughout the pandemic. But there is one holder feeling the pinch perhaps more than anyone else.

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MicroStrategy

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One of the biggest Bitcoin bulls of them all is Michael Saylor, the CEO of MicroStrategy. Wikipedia tells me that MicroStrategy is “an American company that provides business intelligence, mobile software, and cloud-based services”, but in reality it is a Bitcoin holding company, seeing as they hold nearly 130,000 bitcoins on their balance sheet.

The history of these purchases can be seen below.

All of the above purchases bar the first three are now in the red, with total losses currently at $1.31 billion. The average price per bitcoin is at $30,700, close to 50% above the current market price, meaning the $3.97 billion gamble is now worth $2.66 billion.

I plotted both the $3.97 billion investment and $1.31 billion loss against some financials from MicroStrategy’s recent earning reports (all figures trailing 12 months).

Microstrategy margin call price

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As if MicroStrategy weren’t looking scary enough already, down 88% from all-time highs as the Bitcoin price has tanked, whispers of possible margin calls have begun doing the rounds.

This is centred on a three-year loan of $205 million that MacroStrategy took out earlier this year from crypto-focused bank Silvergate, which was secured by 19,466 bitcoins. The $21,000 number was a notable one given MicroStrategy President Phong Le had said in May that “Bitcoin needs to cut in half to around $21,000 before we’d have a margin call”.

However, on the bright side, I don’t believe this margin call is at risk of occurring, given the amount of unencumbered bitcoin on MacroStrategy’s balance sheet that could be posted. Le had said as much, adding that “before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there”, while CEO Michael Saylor told CNBC yesterday that “the margin call thing is much ado about nothing”.

MicroStrategy share price

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While this will no doubt appease investors of MacroStrategy, there’s not much else good news. Oh – and any doubt around what it is that drives MicroStrategy’s price action can safely be put to bed by looking at the below graph (colour clash gives me a headache, but let’s be honest, this is an ugly graph no matter what you look at it).

It’s been a torrid time for investors, and I can’t remember the last time I checked my portfolio to see it green. Then again, I could be MacroStrategy, so I guess it’s not all that bad.

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