Panic spread on the MicroStrategy stock on Monday due to the statements of CFO Phong Le claiming that if the price of Bitcoin falls to $21,000, a margin call could be triggered.
Microstrategy CFO puts the company in trouble and CEO responds
Yesterday, CEO Michael Saylor published a tweet in which he categorically denies this hypothesis.
MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. $MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral. See slides 11-12 in Q1 2022 presentation. #HODLhttps://t.co/9WHsIB6Usx
— Michael Saylor⚡️ (@saylor) May 10, 2022
The tweet reveals that the company has $205 million in long-term debt that requires $410 million in collateral.
Possessing a total of 115,109 BTC that can be used as collateral, he claims that the margin call could only be triggered if the price of Bitcoin drops to $3,562.
In this regard, it is necessary to make a couple of clarifications.
First, Phong Le himself had already clearly said that before triggering the margin call at $21,000 they could use other Bitcoin as collateral for the loan, thus removing the danger.
The second is that $205 million is not the company’s total debt, but only the debt from the long-term secured BTC loan they obtained some time ago. It is only on this specific loan that the margin call could be triggered.
Doing the math, it emerges that securing $410 million in Bitcoin should its price fall to $21,000 would require about 19,523 BTC, or just under 17% of all BTC held by the company. So there should be no problem securing that loan even in the event of a substantial drop in Bitcoin’s price.
Moreover, the minimum price touched in 2022 is still significantly above $21,000, which is a bottom that has not been touched since mid-December 2020.
The movement of the stock on the market
MicroStrategy shares rebounded yesterday on the stock exchange by 3% after Monday’s 25% drop, returning to a level they haven’t seen since November 2020, when the BTC price was still well below $20,000.
Overall since the end of March, they have lost 56%, which is much more than BTC has lost in the same period.
In fact, now that the company is exposed to the price of Bitcoin not only with its own funds, but also with borrowed money, the risks have definitely increased.
At a time when irrational fears seem to be prevailing on the stock markets, it is not strange that panic can easily spread even when it seems totally unjustified.
After all, MicroStrategy is a company accustomed to taking risks, so much so that in the past its share price literally collapsed from an all-time high of $3,000 in March 2000 to a low of only $4.2 in July 2012. It wasn’t until November 2020, or eight years later, that it again broke through the $250 mark, and then shot up to $1,315 in February 2021.
Now the price is back below $250, which is a very low level indeed compared to the average level of the last year and a half.