MicroStrategy may be forced to sell part of its BTC holdings or add more collateral

MicroStrategy may be forced to sell part of its BTC holdings or add more collateral
3 weeks ago
2 mins read

Software company MicroStrategy Incorporated (NASDAQ: MSTR) is facing a possible margin call as part of maintaining its Bitcoin-backed loan amid ongoing high market volatility.

Notably, the company, which has amassed a significant Bitcoin haul, borrowed $205 million from crypto bank Silvergate Capital with 19,466 Bitcoins as collateral. Based on the loan terms, if Bitcoin trades below $21,000, the company would be compelled to trigger a margin call. 

To avoid the margin call, Microstrategy might be forced to include more collateral to its crypto haul or sell some of its Bitcoin holdings to cover its loan backed by the flagship cryptocurrency

This comes as Bitcoin partly traded at $21,033 on June 14 before slightly recovering to trade at $22,300 by press time, according to CoinMarketCap data. 

MicroStrategy’s plan not to sell Bitcoin 

Although the company’s next move is yet to be determined, MicroStrategy has maintained that it has no plans to sell its Bitcoin holdings. Since starting to amass Bitcoin, the company’s buy-and-hold strategy had been profitable, especially in 2021. 

However, Bitcoin has corrected about 50% over the past six months, with margin calls looming.

It is worth noting that, in May, MicroStrategy’s President Phong Le revealed that the company has 95,643 unencumbered Bitcoins that could be channeled towards serving as collateral.

“We could contribute more bitcoin to the collateral package, so we don’t get into a situation of a margin call,” he said

Bullish on Bitcoin  

Amid the price correction, Bitcoin has hit its lowest Relative Strength Index (RSI), which stood at 43.7 as of June 13. Despite the volatility, MicroStrategy CEO Michael Saylor maintains that Bitcoin is bound to rebound. 

Additionally, MicroStrategy has a Bitcoin holding of over 120,000 BTC, and if it resolved to sell part of the asset, it might have a significant impact on the already struggling crypto market. 

Besides MicroStrategy, most cryptocurrency-related businesses are feeling the heat following the market meltdown. For instance, crypto lender Celsius Network announced pausing withdrawals, swaps, and transfers on its platform, citing extreme market conditions.

However, the company has been adding more Bitcoin to lower the price at which its position will be liquidated. 

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Justinas Baltrusaitis

Justin crafts insightful data-driven stories on finance, banking, and digital assets. His reports were cited by many influential outlets globally like Forbes, Financial Times, CNBC, Bloomberg, Business Insider, Nasdaq.com, Investing.com, Reuters, among others.