MicroStrategy (NASDAQ:MSTR) stock is plummeting lower by about 25% in correlation with the price of Bitcoin (BTC-USD). The price of a Bitcoin has fallen by over 20% in the past week and is now trading below $24,000 for the first time in 18 months. At a price of about $23,000, MicroStrategy would be down over $1 billion on its Bitcoin position.
Contributing to Bitcoin’s decline is a suspension of withdrawals from cryptocurrency brokerage Celsius. The company announced yesterday that it was “pausing all withdrawals, Swap, and transfers between accounts” in order to act “in the interest of our community.” Celsius attributed the withdrawal suspension to “extreme market conditions.”
Now, interest in whether or not MicroStrategy will face a margin call is picking up steam. Let’s get into the details.
MSTR Stock Sinks as Margin Call Fears Heighten
In a call, CFO Phong Le stated that Bitcoin would need to fall to around $21,000 before MicroStrategy faces a margin call. However, CEO Michael Saylor previously said that the crypto would need to fall to around $3,500 for the company to receive a margin call. Even if Bitcoin falls to $3,500, Saylor believes that his company could “post some other collateral.” This suggests that there is theoretically no price low enough for the company to force sell its Bitcoin.
In MicroStrategy’s first-quarter presentation, the company disclosed that it owned 129,218 Bitcoin. At current prices, that position is worth around $2.9 billion. In addition, MicroStrategy’s average cost per Bitcoin sits at around $30,700, net of all fees and expenses. Of the 129,218 Bitcoin, 95,643 are “unencumbered,” or obligation-free. As a result, MicroStrategy can choose to post the unencumbered Bitcoin as collateral.
The software company used multiple sources to acquire the fund used to purchase Bitcoin. These include profits from its core business, convertible bond issuances, and borrowing against its Bitcoin holdings. MicroStrategy reportedly has a $2.4 billion loan from Silvergate Capital (NYSE:SI) out of its total $4 billion purchases.
MicroStrategy’s stock returns will be tied to the price of Bitcoin as long as it continues to hold it. However, it doesn’t appear as if Saylor has lost his confidence in the crypto. Today, he tweeted out “In #Bitcoin We Trust.” The CEO has also stated in the past that he has no intentions of selling any Bitcoin.
On the date of publication, Eddie Pan did not hold (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.
