The company “MicroStrategy” clarifies about the risk of liquidating Bitcoin on its loan from “Silvergate”
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Answer The company “MicroStrategy” clarifies about the risk of liquidating Bitcoin on its loan from “Silvergate”
With the price of Bitcoin dropping, rumors swirled about whether MicroStrategy was in danger of being liquidated on its $205 million loan from Silvergate Bank.
On Tuesday, Michael Saylor, the company’s CEO, explained how much collateral this loan would require, and how much space they had.
MicroStrategy and Bitcoin Loan:
Saylor explained on Twitter that the loan carries a $410 million maintenance guarantee to keep it active, which is double the value of the loan itself.
MicroStrategy has a $205 million term loan and needs to maintain $410 million as collateral. $ mstr She has 115,109 BTC that she can pledge. If the price #BTC For less than $3,562, the company can offer some other guarantees. See slides 11-12 in your Q1 2022 presentation. #HODL
Read:More than $5 billion worth of Ethereum has been burned since the August 2021 upgrade…Details here
– Michael Saylor May 10, 2022
MicroStrategy obtained a Silvergate loan in late March and used the funds to increase its bitcoin positions by 4,167 BTC, bringing the company’s total holdings to 129,218 BTC.
Interestingly, the loan is secured in Bitcoin, which means that it is backed by the company’s existing crypto holdings.
As the price of Bitcoin drops, it is common for traders who borrow this type to be liquidated.
Liquidation means that the collateral is no longer sufficient to cover the position, forcing one to sell his holdings.
For example, when bitcoin crashed to $31,000 yesterday, traders across the market lost more than $300 million in liquidations.
According to Saylor, there is still a long way to go until MicroStrategy faces a similar fate.
Bitcoin will remain as enough collateral until the price drops to $2,062.
Should bitcoin reach that level, the CEO says he will simply entrust more of the remaining 115,109 bitcoins to the loan.
If fully pledged, the loan can stay the same even as low as $3,562, at which point MicroStrategy can still commit to other forms of collateral.
Read:El Salvador loses nearly 15% of its bitcoin investment after falling to the $42,000 level
According to MicroStrategy, the loan term is 3 years and they are required to pay an interest rate of 3.75% minimum.
MicroStrategy, upon its inception, prepared a cash reserve of $5 million up front to handle interest and issue payments.
It also does not prevent the company from incurring additional debt.
Currently, given the bear market, MicroStrategy’s total bitcoin holdings are technically in loss mode for the first time in months.
Although the average purchase price of Bitcoin from MicroStrategy is currently $30,700, the price fell below $30,000 on Monday for the first time since July 2021.
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