The company is at risk of margin calls
Following the current sell-off in Bitcoin, the largest institutional holder of the cryptocurrency is under pressure from a large unrealized loss. This has already climbed to $1 billion.
After the cryptocurrency’s weekend plunge, the question is whether the technology services firm will be forced to sell by margin calls.
Indeed, much of the company’s purchases have been through junk bond and convertible note sales. However, the company’s CEO, Michael Saylor, weighed in on the subject of margin calls last month and dismissed talk of a margin call. According to him, the company would only have a problem if bitcoin reached a value of $3,562.
MicroStrategy shares are down 22% today.
Michael Saylor is a Bitcoin maximalist
We can see how much Saylor believes in Bitcoin on his Twitter.
#Bitcoin is money. Everything else is credit.
— Michael Saylor⚡️ (@saylor) June 11, 2022
Saylor has been accumulating bitcoin for the past few years in every way possible. He makes purchases both from the profits of his analytics software business, through the issuance of convertible bonds, and by borrowing against his bitcoin reserves. According to sources, Saylor has purchased bitcoins for a total of approximately $4 billion, and $2.4 billion of that was through borrowing.
Regarding the hedging of its bitcoins, the company commented as follows.
“Now, as you can see, we have quite a few unencumbered bitcoins, so we have 95,643 unsecured bitcoins. So we have more to contribute in case there is a lot of volatility to the downside. But again, we’re talking about $21,000 before we get to the point where we need to contribute more margin or more collateral,”