The crypto crash is causing issues for a lot of companies that, theoretically, shouldn’t be affected by it. They’ve gone in on investing in the crypto market themselves, adding asset to their balance sheets and paying for the volatility. There’s perhaps no greater example of this than MicroStrategy (NASDAQ:MSTR).
The software company happens to own one of the world’s largest stashes of Bitcoin (BTC-USD). As BTC prices tank, it could very well spell trouble for MSTR stock, especially with chatter of a margin call looming.
On paper, MicroStrategy is not related to crypto at all. It’s a software company that builds analytics tools for businesses. However, its founder and CEO, Michael Saylor, is one of the biggest Bitcoin bulls there is. Taking one look at Saylor’s account on Twitter (NYSE:TWTR) tells investors all they need to know about the executive. Alternatively, they can simply take a peek at MicroStrategy’s monolithic stash of BTC coins on its balance sheet. At the end of Q1, the company reportedly owned 129,218 Bitcoin.
Having such a large amount of such a volatile asset obviously comes with its ups and downs. But with the crash this week seeming like the start of a longer crypto winter, the negatives are certainly outweighing the positives for MicroStrategy. The company lost more than $1 billion in the wake of Bitcoin’s sink from $47,000 at the beginning of the year to just under $22,400 today.
As InvestorPlace writer Eddie Pan reports, the crash is directly affecting investors in MSTR stock. Shares dropped more than 25% in yesterday’s trading session in response to Bitcoin volatility. And now atop these losses, there is chatter of a margin call heating up while BTC prices continue to tumble.
MicroStrategy Risking Margin Call as Bitcoin Prices Tank
MicroStrategy is certainly reeling up to this point. It’s one of the biggest Bitcoin whales in the world and will regret missing out on $1 billion in gains for years. But the company has a new worry at hand — it risks being margin called if Bitcoin prices continue to sink.
Related to MicroStrategy’s Bitcoin investment is a $205 million term loan it took out with financial services company Silvergate Capital (NYSE:SI). MicroStrategy is collateralizing the loan with nearly 20,000 coins from its Bitcoin stash to satisfy the collateral terms of $410 million.
The issue with this loan is that, according to MicroStrategy President Phong Le, the company risks a margin call if Bitcoin prices dip below $21,000. Recently, it did just that, bouncing below the threshold briefly before moving back to the $22,000 level.
If Bitcoin falls through this level and remains there, the company will have to to pay up. Saylor, however, remains unfazed by the dangers of a margin call. He says the company can simply continue providing more BTC collateral until it runs out, if need be. To this effect, Saylor says the real margin call would come only if Bitcoin dipped below $3,562. After this, the company would have collateralized its entire Bitcoin reserve, and would need to provide a different asset.
With all of this in mind, it’s apparent Saylor is not shaken by the crypto crash. Since the start of this most recent volatility, Saylor is doubling down on his opinion that Bitcoin is going to come back.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.