The giant MicroStrategy, known for regularly investing in Bitcoin (BTC), has been the subject of concern in recent days regarding its loan from Silvergate. However, the company offered reassuring words, demonstrating that its position was not at risk of a margin call.
MicroStrategy keeps its BTC
MicroStrategy, the US software company, is well known in the ecosystem for being a strong supporter of Bitcoin (BTC). Indeed, Michael Saylor’s company is regularly in the news for acquiring new BTC. It currently has 129,218 BTC.
With an average acquisition cost of $30,700, the current market price puts the company at a loss on its initial investment. With the investment currently valued at around $2.82 billion, this creates a latent devaluation of 29%.
In March this year, the company took out a $205 million loan from Silvergate to increase its position. However, as we pointed out yesterday, a BTC unit price of less than $21,000 would put MicroStrategy under the threat of a margin call. The initial collateral of 19,466 bitcoins would then not be sufficient collateral.
However, the company denied this possibility, even though the Bitcoin price did indeed sail below the fateful price for a time:
“MicroStrategy has not received a margin call against our Silvergate loan, even though Bitcoin prices have fluctuated recently. “
Right risk management
While the idea that a $205 million loan might not be properly secured is questionable, it should be put into perspective. Indeed, MicroStrategy reminds us that it still has 115,109 BTC, ready to reinforce this collateral if needed:
“We can always bring in additional bitcoins to maintain the required loan-to-value ratio. […] Even at current prices, we continue to maintain more than enough additional unpledged bitcoins to meet our requirements under the loan agreement. “
While the numbers may indeed look impressive, it’s important to understand that this debt represents only a fraction of MicroStrategy’s overall position. So the company has been smart in managing its finances. We could even speculate that it made this loan, not out of necessity, but simply to show that it was possible.
In fact, Michael Saylor says on Twitter that the volatility of Bitcoin has been factored into the company’s strategy. MicroStrategy has structured its balance sheet to HODL in all circumstances:
When @MicroStrategy adopted a Bitcoin Strategy, it anticipated volatility and structured its balance sheet so that it could continue to HODL through adversity. https://t.co/rPSUVPHUVw
– Michael Saylor⚡️ (@saylor) June 14, 2022
The direction of prices remains uncertain and all scenarios are possible. But it is reassuring to see such strong hands shrug off short-term volatility and remain convinced of the technology’s strong fundamentals.
