The company’s CEO said that if the bitcoin price drops below $21,000, they would have to sell some of their holdings because they cannot afford to buy back the shares using only cash.
MicroStrategy (NASDAQ: MSTR) has been around for three decades. Over that time, the company has developed and deployed a series of business intelligence software solutions to help its customers gain insight into their businesses.
The company’s first-quarter earnings call on Tuesday was an important milestone, as it marked the first time in nine years that MicroStrategy’s revenue topped $1 billion. But while investors were celebrating the news, they may have missed something else: If bitcoin falls below $21,000, Microstrategy will be forced to sell some of its bitcoin as part of a margin call on its Silvergate Capital loan.
Bitcoin’s price continues to fall
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On Tuesday, MicroStrategy CFO Phong Le outlined in the company’s first-quarter earnings call that it would face a margin call if bitcoin fell to $21,000, which would represent a decline of 46% from current levels. MicroStrategy was asked during the call, “how far does bitcoin have to fall for MicroStrategy to receive a margin call on the Silvergate loan?”
“As far as where bitcoin needs to fall, we took out the loan at a 25% loan-to-value”
Phong Le
“As far as where bitcoin needs to fall, we took out the loan at a 25% loan-to-value,” Le said. “The margin call occurs at 50% loan-to-value.”
MicroStrategy has amassed more than 129,000 bitcoin with a value of more than $5 billion. This is the second time in a month that a company has been forced to sell its crypto holdings as the price of bitcoin continues to fall. In April, Galaxy Digital Holdings had its shares halted on the stock exchange when they were forced to sell $13 million worth of bitcoin due to margin calls.
In this case, MicroStrategy has raised more than $2 billion in debt to buy its bitcoin holdings at an average price of $30,700. The company is currently trading at $23 per share and is expected to release its Q4 earnings report next week before the markets open for trading on Monday morning.
MicroStrategy’s stock price mirrors bitcoin’s price
Additionally, MicroStrategy’s stock price has closely mirrored the price of bitcoin to the point where some consider it a quasi-bitcoin ETF, as there is no true bitcoin ETF yet approved in the US.
While this may seem like bad news for fans of cryptocurrencies and blockchain technology, Microstrategy is still standing by its commitment to supporting these technologies and Bitcoin—they just won’t be able to afford them if prices keep falling.
They’ve also said that they’ll explore other options for loans based on cryptocurrency with other entities so that they don’t have to dip into their own funds again if there are further drops in value.