Jocelyn Yang

<div id="highlights-block_62a77e158d02d" class="highlights">
 <ul>
 <li>The firm could face a margin call if bitcoin falls below $21,000</li>
 <li>The technology company holds 129,218 bitcoins, valued at just over $3 billion</li>
 </ul>
 
</div>



As bitcoin dipped below $23,000 on the Celsius-driven sell-off early Monday, MicroStrategy’s stock plunged as much as 28% as investors parsed the likelihood of margin calls on the tech company’s bitcoin-backed loans. 



Led by CEO Michael Saylor, MicroStrategy raised <a href="https://www.bloomberg.com/news/articles/2022-04-05/microstrategy-s-saylor-acquires-190-5-million-more-in-bitcoin#:~:text=MicroStrategy%20Inc.,valued%20at%20around%20%246%20billion." target="_blank" rel="noreferrer noopener">more than $2 billion</a> in debt to buy and hold bitcoins starting in August 2020. And Saylor has gone on to buy more bitcoin with loans — collateralized by bitcoin.&nbsp;



Those credit lines have been called into question since a company executive on a recent earnings call said the firm would face a margin call — in which a lender demands additional equity or liquidates a portion of the collateral — if bitcoin&#8217;s price slumped to around $21,000. 



The technology company holds 129,218 bitcoins, valued at just over $3 billion at press time. Now, the company faces risk from a crypto contagion.&nbsp;



The latest step down came after crypto lender Celsius <a href="https://cms.blockworks.co/crypto-total-market-capitalization-under-1t-after-10-fall/" target="_blank" rel="noreferrer noopener">paused withdrawals and swaps</a> due to “extreme market conditions.” Bitcoin (BTC) fell to its lowest level in 18 months. 



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">In <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> We Trust.&mdash; Michael Saylor⚡️ (@saylor) <a href="https://twitter.com/saylor/status/1536317595166687232?ref_src=twsrc%5Etfw">June 13, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The prospect of a margin call was raised on a May 3 earnings call when MicroStrategy’s chief financial officer said it would occur at 50% loan-to-value ratio — or around $21,000 per bitcoin — considering the company took out the loan at a 25% loan-to-value ratio.&nbsp;



The firm, however, could always add additional bitcoins to the loan collateral, preventing liquidation.&nbsp;



Saylor said the firm has no interest in selling, <a href="https://twitter.com/saylor/status/1523996525151539203?s=20&amp;t=4dzRxvGSZ9fcx-KgvBhbhQ" target="_blank" rel="noreferrer noopener">tweeting</a> that if “the price of Bitcoin falls below $3,562 the company could post some other collateral.”&nbsp;



“[Michael Saylor has] one game plan,” ProChain Capital’s president and co-founder David Tawil told Blockworks. “He has nothing to gain by wavering. He’s got to go down with the ship on the single mission of the company, which is bitcoin.”



After Celsius’ pause, Tawil said it all comes down to liquidity.&nbsp;



“With MicroStrategy, they don&#8217;t need liquidity except for the fact that their lenders may require them to post more collateral,” he said. &#8220;The question is, ‘Will the cycle satisfy the lenders? Or, no, that&#8217;s actually going to be worse?&#8217; because what the lender is going to do is as you post the additional collateral, the value in additional collateral is gonna go down along with the rest of the existing collateral.”



MicroStrategy did not immediately return a request for comment.&nbsp;



Crypto-related stock dipped after the U.S. Department of Labor <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank" rel="noreferrer noopener">released</a> the latest Consumer Price Index data last Friday, showing inflation hit 8.6% in May.&nbsp;



Bitcoin’s price was about $23,507 as of 1:50 ET, down 16.7% in the past 24 hours and 21.2% from seven days ago, according to <a href="https://www.coingecko.com/" target="_blank" rel="noreferrer noopener">CoinGecko</a>.




[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#5D25E5&#8243; assets=&#8221;MSTR,BTC-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Phon Le

Newsletter

Blockworks Research