MicroStrategy can withstand bitcoin volatility, CEO says amid ‘margin call’ fears

A stock graph is seen with a representation of bitcoin in this picture illustration taken taken March 13, 2020. REUTERS/Dado Ruvic/File Photo

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June 14 (Reuters) – MicroStrategy (MSTR.O) CEO Michael Saylor said on Tuesday the software firm was capable of withstanding volatility in bitcoin prices after the token slumped to levels that triggered fears of possible liquidation on its leveraged position.

MictroStrategy, an aggressive investor in bitcoin, said it borrowed $205 million from crypto bank Silvergate Capital (SI.N) in March, with the three-year loan mostly secured against some 19,466 bitcoins.

If the bitcoin price dropped below about $21,000, it would trigger a “margin call” or demand for extra capital, MicroStrategy President Phong Le said in webcast in May.

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Bitcoin fell below that level to $20,816.36 on Tuesday before steadying near $22,000. Typically a margin call is met by providing more capital or liquidating the loan’s collateral.

It was unclear if the price moves had any consequences for MicroStrategy, or if the firm already provided more bitcoin or cash to secure the loan. The company did not respond to requests for comments.

MicroStrategy had “anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity,” Chief Executive Officer Saylor said in a tweet on Tuesday.

A spokesperson for Silvergate declined requests from Reuters for comment.

MicroStrategy shares rose 6% and Silvergate gained 3% on Tuesday, following 25% and 17% tumble on Monday in line with a pullback in crypto assets.

MicroStrategy’s told him in May that the firm had 95,643 “unencumbered bitcoin” that it could use as extra collateral. Based on bitcoin’s last traded price of $22,254, the value of those coins was $2.1 billion.

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

Mark Palmer, head of digital asset research at BTIG, downplayed the risk of a margin call forcing MicroStrategy to trim its holdings. “We see no circumstance in which MicroStrategy is going to need to sell any of its bitcoin holdings,” he said.

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Reporting by Tom Westbrook in Singapore and Medha Singh in Bengaluru; Editing by Arun Koyyur and Maju Samuel

Our Standards: The Thomson Reuters Trust Principles.


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