The company’s loan doesn’t risk liquidation unless Bitcoin’s price falls to $21,000, at which point they can post more Bitcoin collateral.
With Bitcoin’s price on the decline, rumors have buzzed about whether MicroStrategy risks getting liquidated on its $205 million Silvergate loan. On Tuesday, company CEO Michael Saylor cleared the air on how much collateral that loan requires, and how much breathing room they have.
MicroStrategy’s Bitcoin Loan
As Saylor clarified over Twitter, the loan requires maintenance collateral worth $410 million to stay active – which is twice the value of the loan itself.
MicroStrategy took out its Silvergate loan in late March and used the funds to increase its Bitcoin position by 4,167, up to 129,218 BTC in total. Interestingly, the loan is Bitcoin collateralized, meaning it’s backed by the company’s existing crypto holdings.
As the price of Bitcoin drops, it’s common for traders taking out loans of this nature to be “liquidated”. Liquidation means that one’s collateral is no longer sufficient to cover their position, forcing one to sell their holdings. For example, when Bitcoin crashed to $31,000 yesterday, traders across the market lost over $300 million in liquidations.
Yet according to Saylor, there’s still a long way to go until MicroStrategy faces a similar fate. The company’s 19,466 Bitcoin will remain sufficient collateral until its price falls to $21,062.
However, should it reach this level, the CEO says he will simply pledge more of its remaining 115,109 Bitcoin to the loan. If entirely pledged, the loan can remain intact until a price as low as $3,562 – at which point MicroStrategy can still commit other forms of collateral.
According to MicroStrategy’s site, the term of the loan is 3 years and binds them to pay a 3.75% minimum interest rate. When established, MicroStrategy prepared a $5 million cash reserve in advance to handle interest and issuance payments. It also does not restrict the company from incurring additional debt.
MicroStrategy’s Bitcoin Goes Underwater
Due to the bear market, MicroStrategy’s total Bitcoin position has technically gone underwater for the first time in months. Though its average Bitcoin purchase price is currently $30,700, the price descended below $30,000 on Monday for the first time since July 2021.
That hasn’t shaken up Saylor’s confidence in the asset. While it fell yesterday, the CEO casually joked about having to return to McDonald’s for work.