Bitcoin’s price dip has affected crypto firms and investors like MicroStrategy whose stock plunged as much as 28%. The technology company had raised more than $2 billion in debt to buy and hold Bitcoins. Michael Saylor, CEO of MicroStrategy, bought more Bitcoin via loans, which were collateralized by the popular cryptocurrency.
MicroStrategy’s executive, on a recent earnings call, said the firm would face a margin call, wherein a lender asks for additional equity or liquidates a portion of the collateral. With BTC price on a downhill roll, the firm faces risk from a crypto contagion. On May 3, MicroStrategy’s chief financial officer highlighted that the margin call would occur at a 50% loan-to-value ratio or around $21,000 per Bitcoin. This is if the firm took out the loan at a 25% loan-to-value ratio. MicroStrategy can always add additional Bitcoins to the loan collateral – preventing liquidation.
Saylor said the company has no interest in selling. The executive tweeted that MicroStrategy would post some other collateral if Bitcoin falls below $3,562. David Tawil, the president and co-founder of ProChain Capital, said Michael Saylor has one game plan. He highlighted that Saylor has nothing to gain by wavering and he has to go down with the ship as MicroStrategy’s single most mission has been Bitcoin.
Tawil explained that the tech company doesn’t need liquidity, but its lenders may require it to post more collateral. He asked whether it will satisfy the lenders or will it get worse. Additional collateral will go down along with the rest of the existing collateral.