MicroStrategy Stock Plunges, as BTC Struggles Above $31.6K

Key Insights:

• MicroStrategy, the largest corporate bitcoin (BTC) holder, drops 60% since the beginning of the year.
• Bitcoin evangelist Michael Saylor-run company holds 129,218 BTC as of April 4.
• The company could face a margin call if the price of bitcoin falls below $21,000.

Bitcoin holding firm MicroStrategy (MSTR) was tumbling around 60% year-to-date (YTD), even below bitcoin (BTC), which was down by 31%.

Michael Saylor’s company MicroStrategy, the largest corporate bitcoin holder, is trading in red in the stock market, a move directly proportional to bitcoin’s steep plunge, closing in on $30,000.

Surprisingly, this drop was recently correlated with tech stocks. The most popular cryptocurrency has lost more than half its value since reaching its highs near $69,000 in November.

MicroStrategy and subsidiaries hold 129,218 BTC

The business-intelligence software firm has been accumulating bitcoin for its balance sheet since August 2020. Company filings on April 4 showed that it holds 129,218 bitcoins. The company had purchased BTC funded with a bitcoin-backed loan.

In March, the company turned to Silvergate Bank to borrow $205 million in order to buy more BTCs. However, the bitcoin-backed loan was interest-only, with the principal to be paid at the end of the loan term period.

Per a Bloomberg report, other crypto-centric stocks also showed a sharp decline, including crypto miner Marathon Digital Holdings which dropped 19% with its YTD losses to 63%. Riot Blockchain, another bitcoin holder in its balance sheet, plummeted to its lowest since November 2020.

Steven McClurg, chief investment officer of Valkyrie Investments, told the publication:

“The correlation between the two asset classes has grown more pronounced in recent months because the number of publicly traded companies involved in blockchain and digital assets continues to grow, and is not likely to reverse course.”

Risk factor

The approach of taking loans to finance more of a speculative asset, comes with a risk. It can trigger a margin call if the price of bitcoin falls below $21,000.

This means that the company could be forced to sell its bitcoin holdings at a depreciated price, which would result in more losses for shareholders.

According to MicroStrategy CFO Phong Le, the company holds “quite a bit of uncollateralized bitcoin,” which can be used to support if a margin call occurs. He noted that it is very unlikely that BTC would touch $21,000, which was seen in December 2020.

He noted during MicroStrategy’s first-quarter earnings call:

“As you can see, we mentioned previously we have quite a bit of uncollateralized bitcoin. So we have more that we could contribute in the case that we have a lot of downward volatility. I think we’re in a pretty comfortable place where we are right now.”