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June 13, 2022, 7:11 a.m. EDT

MicroStrategy shares slump as bitcoin margin call looms

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By Steve Goldstein

MicroStrategy has vowed never to sell any of the approximately 130,000 bitcoin it has in its possession.

The question after the weekend’s slide in cryptocurrency is whether a margin call will force the technology services firm’s hand. Bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.15% traded below $24,000 after a weekend rout, in part tied to crypto lender Celsius Network suspending withdrawals and transfers.

MicroStrategy /zigman2/quotes/202561856/composite MSTR +3.18% shares slumped 21% in premarket trade. Heading into Monday, the stock has dropped 76% from its November peak.

CEO Michael Saylor, a crypto enthusiast, has led MicroStrategy to aggressively accumulate the cryptocurrency. These bitcoin purchases have made not just with profits from its analytics software business, but also by borrowing via convertible bond issuance, and also by borrowing against its bitcoin holdings , in a loan with Silvergate /zigman2/quotes/214908078/composite SI -0.25% . According to a story from NewsBTC last week , loans accounted for $2.4 billion of its $4 billion in bitcoin purchases.

Saylor’s love of bitcoin has been undiminished by the weekend slide.

CFO Phong Le said during the first-quarter conference call that only the bitcoin purchased against its stockpile were subject to a margin call. “Now, the risk of really are that we would have to contribute more bitcoin,” he said, according to a transcript compiled by FactSet Research.

“Now, as you can see, we mentioned previously we have quite a bit of uncollateralized bitcoin, so we have 95,643 unencumbered bitcoin. So we have more that we could contribute in the case that we have a lot of downward volatility. But again, we’re talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributed,” he added.

Bitcoin’s swift descent means its investment has had negative returns. At the end of the first quarter, MicroStrategy said the acquisition cost was $30,700 per bitcoin, net of fees and expenses.

/zigman2/quotes/31322028/realtime
US : CoinDesk
23,306.77
+35.95 +0.15%
Volume: 0.00
Aug. 7, 2022 5:42p
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/zigman2/quotes/202561856/composite
US : U.S.: Nasdaq
$ 319.15
+9.84 +3.18%
Volume: 691,355
Aug. 5, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$3.61 billion
Rev. per Employee
$237,557
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/zigman2/quotes/214908078/composite
US : U.S.: NYSE
$ 102.42
-0.26 -0.25%
Volume: 645,448
Aug. 5, 2022 4:03p
P/E Ratio
29.63
Dividend Yield
N/A
Market Cap
$3.24 billion
Rev. per Employee
$869,548
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