As the price of the leading cryptocurrency by market cap, Bitcoin, declined, crypto enthusiasts speculate whether Microstrategy runs the risk of getting liquidated on its $205 million Silvergate loan. Michael Saylor, the company’s CEO, clarified on Tuesday how much collateral the loan needs and how much leisure time they have.
Bitcoin Loan Of MicroStrategy
In order to stay active, the CEO clarified that the loan needs $410 million worth of maintenance collateral, which is almost twice the value of the loan itself.
In late March, Microstrategy extracted its Silvergate loan and utilized the funds to increase its Bitcoin position by 4,167, up to 129,218 BTC in total. The loan is collateralized by Bitcoin, which means it’s backed by the existing crypto holdings of the company.
It’s normal for traders taking out loans of this character to be “liquidated” as the price of Bitcoin decreases. For the uninitiated, Liquidation means that one’s collateral is no longer enough to back its position, pushing individuals to sell their holdings. For instance, yesterday, Bitcoin dropped to $31,000, and traders suffered the loss of more than $300 million in liquidations.
However, Saylor is still confident that there is a lot of time before MicroStrategy culminates to a similar end. Until the assets price drops to $21,062, the company’s Bitcoin holding of 19,466 would be enough collateral.
The CEO shared that he would be pledging more out of its remaining 115,109 Bitcoin to the loan. The loan can remain intact till the price hits a low of $3,562, in case it is entirely pledged, at which point MicroStrategy would still have the option to commit to other forms of collateral.
The period of the loan is three years and is obliged to pay a minimum interest rate of 3.75%, as per the MicroStrategy’s site. For handling interest and issuance payments, Microstrategy prepared a $5 million cash reserve in advance at the time of establishment. It also does not stop the company from acquiring additional loans.
MicroStrategy’s Bitcoin Sunken
The total Bitcoin position of Microstrategy has sunk for the first time in months because of the bearish market. The price dropped lower than $30,000 on Monday for the first time since July 2021; however, its average Bitcoin purchase price is currently $30,700.
It was successful in breaking Saylor’s faith in the asset class. The CEO was seen joking while it plummeted yesterday about returning to McDonald’s for work.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
Source: https://www.thecoinrepublic.com/2022/05/13/is-microstrategy-runs-risks-getting-liquidated-on-its-205-million-silvergate-loan/