Microstrategy Margin Call Rumors Called Out

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  • Suggestions that Microstrategy could get margin called at $21,000 have been debunked
  • A Twitter user suggested that on a recent earnings call, he CFO Phong Le stated that Bitcoin at that price would cause a margin call
  • This has been debunked by further analysis of the call, with Microstrategy able to simply add more bitcoin

Claims that Microstrategy will face a margin call if Bitcoin drops to below $21,000 have been shown to be erroneous, after the suggestion was raised on Twitter following an earnings call. The claim surfaced following the quarterly earnings discussion, where new Microstrategy CFO Phong Le was discussing the point at which Microstrategy could get margin called, an event that could theoretically precipitate a collapse in the Bitcoin price. However, this supposition was quickly debunked, with explanations over the structuring of Microstrategy’s loans reassuring anyone who was worried about the company potentially tanking the market.

Microstrategy $21,000 Margin Call Will Never be Hit

Microstrategy is famous for buying up huge amounts of bitcoin, with over 125,000 in its coffers, and last week announced that it had taken out a $205 million loan in order to buy more. On the quarterly earnings call this week, a question was raised about the point at which the loan could be called in, with Le outlining the company’s position:

As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV, the margin call occurs 50% LTV. So essentially, Bitcoin needs to cut in half or around $21,000 before we’d have a margin call.

This led Twitter user @xbt_ag to claim, erroneously, that Microstrategy will get margin called at $24,000, before correcting their claim:

However, as others pointed out, if the price ever did drop to that point, Le confirmed that Microstrategy would not liquidate its Bitcoin holdings to pay for the margin call but would instead use its own cash to buy more bitcoin:

As you can see, we mentioned previously, we have quite a bit of uncollateralized bitcoin. So we have 95,643 encumbered bitcoin. So we have more that we could contribute in the case that we have a lot of downward volatility. But again, we’re talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributors. So I think we’re in a pretty comfortable place where we are right now.

In addition to its ability to add more bitcoin to settle a margin call, other Twitter users also pointed out the the portion of bitcoin at risk was a small percentage of their overall holdings:

So there we have it, if you were worried about Microstrategy crashing the market further if Bitcoin takes a nose dive, it’s just your own portfolio you should be concerned about.