MicroStrategy is a company that converted liquid assets into digital money. But is it a good strategy? Is it profitable? What is MicroStrategy’s margin call and risk? Let’s take a look. What is MicroStrategy doing with BTC? And what does that mean for investors? We’ll talk about all this in this article.
MicroStrategy’s bitcoin strategy
In late 2020 and throughout last year, MicroStrategy stock performed very well alongside bitcoin. Now, the cryptocurrency market is a tumult. Investors have backed out of risky assets like Bitcoin, and an experimental stablecoin project is in dire straits. But a new CEO at MicroStrategy is predicting a bright future for the digital currency. Despite the uncertainty, the company has remained a buyer. Its graph, which shows the stock’s price movements since 2022, reveals a story that will be worth telling.
The CEO of MicroStrategy, Michael Saylor, recently tweeted that his firm is incorporating volatility into its Bitcoin strategy. While the firm has an uncollateralized Bitcoin balance sheet, it can use that to answer margin calls. This strategy may sound like a great way to invest in Bitcoin, but it’s not without risk. And while MicroStrategy is leveraging its bitcoin position to keep the company afloat, it’s a risky play.
MicroStrategy’s Bitcoin stash is still up, and the company’s average purchase price is around $30K. It also carries $2.2 billion in debt, so the company’s overall profit from BTC is up by about $10K. Despite the tumultuous market, the company has managed to accumulate a substantial amount of BTC. And while the stock price is down, its BTC stash is still up. In fact, it’s up almost 7% in the last 24 hours, making MicroStrategy’s total BTC holdings worth a staggering $1.086 billion.
As the price of Bitcoin continues to plummet, the company has been criticized by a prominent stock market pundit, Jim Cramer. Although he’s a renowned stock market investor, he has courted controversy by promoting his own views on bitcoin. In an interview on CNBC’s “Mad Money,” Cramer mocked MicroStrategy’s Bitcoin strategy, which is based on the firm’s recent Bitcoin investments.
Unlike traditional investments, Bitcoin is a volatile currency and, as such, MicroStrategy’s bitcoin strategy relies heavily on the fact that it’s a long-term investment. The company hopes to stay ahead of the technology adoption curve, but it doesn’t want to fall behind. MicroStrategy’s bitcoin strategy is designed to protect itself from the risk of margin calls in the event that bitcoin’s price falls below $21,000.
The company’s margin call
MicroStrategy, a software startup, is the largest Bitcoin holder among publicly traded companies. Now, it faces a margin call. MicroStrategy, which owns around 129,000 Bitcoins, will have to post collateral to avoid margin calls. But, it may not be necessary to sell all those coins. MicroStrategy may contribute more to the collateral package. Bitcoin is currently trading at around $22,500. The company had bought the cryptocurrency aggressively. It held 129,000 Bitcoins at the end of the first quarter. If Bitcoin fell below this level, it would trigger a margin call.
The company’s CEO Michael Saylor disputed rumors about a margin call and explained that it was prudent to keep its loan-to-value ratio below 50%. Moreover, he tweeted that the company had designed its balance sheet to withstand the extreme volatility of the crypto market. In order to protect its balance sheet, MicroStrategy secured a $205 million term loan from cryptocurrency-focused bank Silvergate Capital and pledged its BTC holdings as collateral.
As Bitcoin fell below $20,816 yesterday, MicroStrategy faces a margin call. The founder of the company has pledged to buy $3 billion in bitcoin by 2020. As of now, MicroStrategy owns more than 129,200 of the cryptocurrency. However, if Bitcoin continues to fall below $21,000, the company will face a margin call. A margin call can send ripples throughout the industry.
