Key Findings:
- MicroStrategy, the largest corporate holder of Bitcoin (BTC), is down 60% year-to-date.
- The company, led by Bitcoin evangelist Michael Saylor, holds 129,218 BTC as of April 4.
- The company could face a margin call if Bitcoin’s price falls below $21,000.
Bitcoin holding company MicroStrategy (MSTR) is down around 60% year-to-date (YTD), even trailing bitcoin (BTC), which is down 31%.
Michael Saylor’s company MicroStrategy, the largest corporate Bitcoin holder, is trading in the stock market in red, a move directly proportional to Bitcoin’s steep plunge heading towards $30,000.
Surprisingly, this drop has recently been correlated with tech stocks. The most popular cryptocurrency has lost more than half of its value since peaking at nearly $69,000 in November.
MicroStrategy and its affiliates hold 129,218 BTC
The business intelligence software company has been accumulating bitcoin for its balance sheet since August 2020. The company’s filings, filed on April 4, showed that it holds 129,218 bitcoins. The company had bought BTC funded with a Bitcoin-backed loan.
In March, the company approached Silvergate Bank to lend $205 million to buy more BTCs. However, the bitcoin-backed loan was interest-only, with the principal payable at the end of the loan’s term.
According to a Bloomberg report, other crypto-centric stocks also showed sharp declines, including crypto miner Marathon Digital Holdings, which fell 19% to 63% with its YTD losses. Riot Blockchain, another Bitcoin holder on its balance sheet, plunged to its lowest level since November 2020.
Valkyrie Investments chief investment officer Steven McClurg told the publication:
“The correlation between the two asset classes has grown stronger in recent months as the number of publicly traded companies involved in blockchain and digital assets continues to grow and is unlikely to reverse.”
risk factor
The approach of borrowing to fund more of a speculative asset comes with a risk. It can trigger a margin call if Bitcoin’s price falls below $21,000.
This means the company could be forced to sell its bitcoin holdings at a lower price, which would result in further losses for shareholders.
According to MicroStrategy CFO Phong Le, the company holds “quite a lot of unsecured bitcoin” that can be used for support if a margin call hits. He noted that BTC is very unlikely to reach $21,000, which was seen in December 2020.
He noted during MicroStrategy’s first-quarter earnings conference call:
“As you can see, we mentioned earlier that we have quite a bit of unsecured bitcoin. So we have more to contribute if we have a lot of downside volatility. I think we’re in a pretty comfortable place where we’re at right now.”
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.