MicroStrategy is walking a tight rope at the moment and could face a margin call thanks to the rapidly declining value of Bitcoin (BTC).
Michael Saylor’s MicroStrategy is standing on the precipice of a slippery slope after Bitcoin’s price fell to a new 18-month low at the start of the week. The software company may be forced to answer a margin call after borrowing to fund its aggressive Bitcoin accumulation.
The company previously borrowed $205 million from Silvergate Capital, a crypto bank that was secured with nearly 20,000 bitcoins. Part of the terms of the loan agreement was that if the price of BTC fell below $21,000, a margin call would occur, requiring MicroStrategy to deposit securities to meet the margin requirements.
On Monday, BTC fell all the way to $20,950 as it lost 17% of its value in a single day. This decline falls below the $21,000 mark that would trigger the margin call as revealed by MicroStrategy President Phong Le back in May.
As of press time, both MicroStrategy and Silvergate were yet to reveal details on whether the margin call had been satisfied or not. However, Le claimed in May that the firm had enough reserves to cover any margin call to the relief of investors.
“We could contribute more bitcoin to the collateral package so that we don’t get into a situation of a margin call,” Le said. He revealed that the company was in possession of “unencumbered bitcoin” of up to 95,643.
MicroStrategy’s bitcoin play turns sour
As the markets reeled from the carnage, stock prices were not left out. Companies with significant Bitcoin holdings suffered significant declines in their values with MicroStrategy the hardest hit of the lot.
MicroStrategy shares fell by 25% in a day which led critics like Jim Cramer to question and take swipes at the company’s Bitcoin plans. The firm had gone on a 12-month accumulation spree, racking up 129,218 BTC in the process at an average price of $32,000.
With BTC’s price at $22,000 at the moment and the crypto winter showing little to no signs of passing, the firm has not seized the moment to buy the recent dip. Silvergate shares also fell by double-digits at the start of the week over fears of increasing interest rates.
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