Why MicroStrategy Did Not Receive A Margin Call Even Though Bitcoin Fell Below $21,000

MicroStrategy, an American business intelligence company, would face a margin call situation if Bitcoin (BTC), which was the collateral used to take a loan from SilverGate Bank, falls to $21,000 or below, said the company’s chief financial officer Phone Le in its Q1 earnings call in March 2022. A margin call is received when the borrower needs to put additional money due to depreciation in the value of the mortgaged asset.

The world’s largest cryptocurrency has fallen well below $21,000 but MicroStrategy has not yet received a margin call. As on Saturday morning, BTC is trading at $20,443.06, down by 1.24 per cent, as per Coinmarketcap data. So why has the company not faced a margin call yet?

The Loan

The company has been buying Bitcoin since 2020 using a combination of debt and cash. In March 2022, MicroStrategy took a $205 million loan from Silvergate Bank to buy BTC.

The interest-only loan was given to MacroStrategy LLC, a subsidiary of MicroStrategy, which is listed on the Nasdaq stock exchange, New York, and was secured by BTC as collateral. The company had 129,218 BTC at an average price of $30,700 as on March 31, 2022.

What’s The Situation Now?

Back in March, Le said that if they faced a margin call situation, they would provide more collateral by pumping in more money. So, is it possible that they haven’t received a margin call because they have indeed done that now? Statements by their top management indicate so.

Le said in March that while they may have taken the Bitcoin loan at 25 per cent loan-to-value arrangement but before this loan to value gets to 50 per cent, they will contribute further additional margin in the nature of Bitcoin to the overall collateral package. “Before it (loan) gets to 50 per cent (margin), we could contribute more Bitcoin to the collateral package, so it never gets there, so we don't ever get into a situation of a margin call," he said at the time.

Three days ago, in an interview with CNBC, MicroStrategy CEO Michael Saylor said that they have not received any margin calls till now and they are confident of the company’s balance sheet as it can manage their collateralized debt very well. He revealed that they have borrowed $2.2 billion at a blended interest rate of 1.8 per cent, and this was before the recent US Federal Reserve rate hikes.

“If you had a chance to grab $2 billion at 1.5 per cent interest, it seems like a reasonable thing to do, and I’m glad we did it. Most of it is unsecured debt–$1.7 billion of it is unsecured. The $500 million comes due in seven years after we borrowed the money. So we feel like we have a fortress balance sheet, we’re comfortable, and the margin loan is well managed,” said Saylor.