Business

Crypto Volatility or Margin Calls Not a Problem, Says Microstrategy

June 15, 2022
Bharat Times

MicroStrategy allays ‘margin call’ fears, says may face volatility

US software developer MicroStrategy Inc said it has not received a margin call against the bitcoin-backed loan and could face further volatility, soothing market shocks after the token’s slide followed fears of the asset’s liquidation.

Microstrategy, an aggressive investor in the highly volatile cryptocurrency bitcoin, borrowed $205 million from crypto bank Silvergate Capital Corp in March, with a three-year loan mostly secured against 19,466 bitcoin.

Microstrategy President Fong Le, in a webcast in May, asked whether the price of bitcoin should drop below around $21,000, which would trigger a “margin call” or demand for additional capital.

Bitcoin fell from that level on Tuesday to $20,816.36 and then stabilized near $22,000. The company said via email that it has not received the margin call.

Silvergate declined to comment.

Microstrategy shares were up 6 per cent and Silvergate shares up 3 per cent in US trading on Tuesday after heavy selling on Monday.

Typically a margin call will be met by providing more capital or by liquidating the collateral of the loan.

“We can always contribute additional bitcoin to maintain the required debt-to-value ratio,” Microstrategy said in an emailed statement to the United States late Tuesday.

“Even at current prices, we continue to hold more than enough additional collateralized bitcoin to meet our requirements under the loan agreement.”

Chief Executive Officer Michael Saylor said in a tweet on Tuesday that Microstrategy had “predicted volatility and structured its balance sheet so that it can continue to #HODL under adverse conditions.” Among crypto enthusiasts.

The comments provided little respite for cryptocurrency markets, which were made riskier assets less attractive by the prospect of a rise in US interest rates, but analysts played down concerns that the price move could trigger liquidations.

“We do not see any circumstances requiring Microstrategy to sell any of its bitcoin holdings,” said Mark Palmer, head of digital asset research at BTIG.