Saturday, July 2, 2022

Microstrategy’s CEO Michael Saylor dismisses the rumor of a margin call

The Takeaway:

MicroStrategy now has 129,218 Bitcoins in its bank account. As a result of Bitcoin's price drop, there are growing fears that the corporation could be forced to liquidate or pledge a major chunk of its Bitcoin reserves as collateral.

On Tuesday, Microstrategy’s CEO, Michael Saylor, claimed that the company does not expect to get a margin call and that they have adequate collateral if needed to post more.

However, reports started to surface the next day that his company could have to liquidate its bitcoin to meet a margin call on its $205 million bitcoin-backed debt with Silvergate Capital.

The CEO of Microstrategy says the rumor is “much ado about nothing.”

On CNBC’s “Squawk on the Street” on Wednesday, Saylor indicated that the margin call issue is unjustified. “The margin call issue is a load of nonsense,” he said, dismissing reports that MicroStrategy could sell part of its Bitcoin as “absolutely wrong.”

When a client must contribute extra capital or sell the loan’s collateral to avoid losses on a trade made using borrowed funds, this is known as a margin call.

In a tweet on May 10, Saylor stated that Microstrategy must keep $410 million “as collateral for this loan.” Bitcoinsensus is the source of this image.

Following a day of heavy selling on Monday, MicroStrategy shares rose 6 %, and Silvergate rose 3 % in U.S. trade on Tuesday.

MicroStrategy leased $205 million from cryptocurrency bank Silvergate Capital in March, with 19,468 bitcoins serving the majority of the security for the three-year loan. Additional bitcoins were purchased using the money.

They’ll keep hodling, says Saylor.

Saylor tweeted that when MicroStrategy established a “Bitcoin Strategy,” it expected volatility and built its balance sheet to allow it to “hodl” through moments of instability.

“When @MicroStrategy adopted a #Bitcoin Strategy, it anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity.”

According to Mark Palmer, BTIG’s head of digital asset analysis, the software company will not be obliged to liquidate any of its bitcoin assets.

The cryptocurrency market’s collapse, which began in April, continued over the weekend, with the market shedding 14% of its value in the last 24 hours. Bitcoin and Ethereum, two famous cryptocurrencies, have lost 16 percent and 24 percent of their value since Friday.

MicroStrategy president Phong Le said in a live stream last month that if the price of bitcoin falls below $21,000, a margin call, or demand for additional cash, will be triggered.

 

‘We Have A Fortress Balance Sheet’

Microstrategy must keep $410 million “as security for this loan,” Saylor confirmed in a May 10 tweet that the company’s bitcoin-backed credit was “10 times overcollateralized.”

MicroStrategy is the world’s largest independent business intelligence software company, with a stock on the New York Stock Exchange (NASDAQ).

In August 2020, it started investing in cryptocurrencies as government reserve assets, citing a weakening U.S. currency and global macroeconomic concerns.

“We feel like we have a fortress balance sheet,” Saylor said. We’re at ease, and the margin strain has been successfully managed.”

 

The market cap of Bitcoin is below $ 500 billion.

The market capitalization of Bitcoin came below $ 500 billion after the recent collapse of the global crypto market. It had reached a high of $ 1.7 trillion at the peak in November of 2021. 

total market capitalization of Bitcoin
Total market capitalization of Bitcoin. Source: tradingview.com

Disclaimer: The article reflects the opinions of the author and is not representative of Chaintimes’ views.
The article does not offer any investment advice. User discretion is advised when investing in or trading with cryptocurrency. Extensive and diligent research should be carried out by the reader before making a decision.

Harry Finnerty
Harry Finnerty
After completing his graduation from Strayer University, Harry started to work in the real estate industry. However, soon he realized that his real interest is in the financial industry and once he came to know about bitcoin and the technology behind it, he dedicated his life to understand and write about it.

Leave A Reply

Please enter your comment!
Please enter your name here