MicroStrategy first began adding bitcoin to its balance sheet in 2020, and has amassed 129,218 bitcoin at an average price paid of about $30,700. That didn't sit well with investors when bitcoin fell below $30,000 on Wednesday, hitting a low of $29,314.
The bet made by MicroStrategy is even more tenuous when you consider that the fledging software company raised billions of dollars in debt to fuel its spree of bitcoin purchases.
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That puts the company at risk of default if the cryptocurrency continues its plunge, especially given that MicroStrategy's software business is not profitable enough to service the debt. That risk is showing through in the current pricing of some of MicroStrategy's individual bonds, with its convertible offering due in 2027 trading at 60 cents on the dollar earlier this week.
If bitcoin falls below $21,000, MicroStrategy will be met with a margin call from one of its loans. That would force the company to either put up more collateral to the loan or sell some of its bitcoin holdings, according to comments from MicroStrategy CFO Phone Le on the company's most recent earnings call.
MicroStrategy was asked during the call, "how far does bitcoin have to fall for MicroStrategy to receive a margin call on the Silvergate loan?" In March, MicroStrategy took out a $205 million bitcoin-collateralized loan with Silvergate Bank to purchase more bitcoin.
"As far as where bitcoin needs to fall, we took out the loan at a 25% loan-to-value, the margin call occurs [at] 50% loan-to-value. So essentially, bitcoin needs to cut in half or around $21,000 before we'd have a margin call," Le answered. Bitcoin would need to fall 32% from current levels to hit $21,000.
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