Jun 14, 2022 - Economy

MicroStrategy has bitcoin to keep "HODLing"

A dart mid-air about to hit a bitcoin

Illustration: Lazaro Gamio/Axios

Enterprise software company MicroStrategy is at risk of having to post more of its bitcoin after taking out a loan to buy more bitcoin.

Driving the news: The price of the cryptocurrency overnight briefly fell below $21,000 — a level at which the company previously said it could face a margin call. That means MicroStrategy could soon face a requirement to post more capital for its roughly $205 million bitcoin-collateralized three year term loan.

Catch up fast: CEO and co-founder Michael Saylor has become a high-profile bitcoin evangelist, raising eyebrows when he started buying bitcoin for the company's balance sheet.

  • The Tysons Corner, Virginia-based company has 129,218 bitcoins, according to its most recent quarterly report, effectively making its stock a leveraged bet on the price of the digital asset going up.
  • It borrowed from crypto-native Silvergate Bank, a unit of Silvergate Capital, in March to buy more bitcoin.

What they're saying: "We remain committed to our bitcoin strategy and intend to stay the course," Saylor tells Axios.

  • He also pointed to his Tuesday morning tweet, saying the company "structured" the company's balance sheet to withstand "adversity."
  • Alan Lane, CEO of Silvergate Bank, declined to comment on MicroStrategy. More generally, he described the digital asset industry as a "growing ecosystem," and said they have  experienced this volatility before in their eight years as a lender.

Yes, but: MicroStrategy still has plenty of bitcoin to post if it needs.

  • Of the bitcoin it owns, 95,643 coins remain unencumbered.

Flashback: MicroStrategy since Aug. 2020 has employed a buy-and-hold (known as "HODL" in crypto) strategy, with Saylor warning of the deleterious effects of inflation on cash or equivalent holdings.

  • Since then, the company has spent nearly $4 billion to acquire bitcoin, paying an average cost of roughly $30,700.

Between the lines: With the price per bitcoin hovering around $22,500, MicroStrategy's strategy is clocking a paper loss at the moment.

  • What's perhaps more salient to MicroStrategy shareholders is that the company will have a more difficult time acquiring bitcoins at the rate it added to its stash over the last two years, even though they can do so cheaper now.

Threat level: Saylor's enthusiasm for bitcoin also prompted the company to offer the digital asset to employees in their retirement accounts.

Our thought bubble: MicroStrategy's stock could get stuck between the stock market rout and the hard crypto crunch.

What's next: The company's next earnings call will be one to watch.

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