Trading
Bitcoin hovers near MicroStrategy ‘margin call’ price
Global Banking & Finance Review®
Company
By Tom Westbrook
SINGAPORE (Reuters) -Bitcoin neared a price level on Tuesday that could force software firm MicroStrategy Inc to add more tokens against a bitcoin-backed loan or trigger selling some of its vast holdings, setting fragile cryptocurrency markets on edge.
MictroStrategy, an aggressive investor in bitcoin, said it borrowed $205 million from crypto bank Silvergate Capital in March, with the three-year loan mostly secured against some 19,466 bitcoins.
If the bitcoin price dropped below about $21,000 that would trigger a “margin call” or a demand for extra capital, MicroStrategy President Phong Le said in webcast in May.
Bitcoin fell below that level to $20,816.36 on Tuesday before steadying near $22,000. Typically a margin call is met by providing more capital or liquidating the loan’s collateral.
It was unclear if the price moves had any consequences for MicroStrategy, or if the firm already provided more bitcoin or cash to secure the loan.
The company and Silvergate did not respond to requests for comment.
MicroStrategy’s Le said in May that the firm had 95,643 “unencumbered bitcoin” that it could use as extra collateral. Based on bitcoin’s last traded price of $22,254, the value of those coins was $2.1 billion.
“We could contribute more bitcoin to the collateral package, so … we don’t get into a situation of a margin call,” he had said.
Mark Palmer, head of digital asset research at BTIG, downplayed the risk of a margin call forcing MicroStrategy to trim its holdings. “We see no circumstance in which MicroStrategy is going to need to sell any of its bitcoin holdings,” he said.
Nevertheless the situation, even if it does not result in MicroStrategy selling anything, was enough to keep the mood nervous.
MicroStrategy shares fell 3% and Silvergate lost 2% on Tuesday, extending losses from their 25% and 17% tumble on Monday in line with a pullback in crypto assets.
(Reporting by Tom Westbrook in Singapore and Medha Singh in Bengaluru; Editing by Arun Koyyur)
A margin call occurs when the value of an investor's margin account falls below the broker's required amount, prompting the investor to deposit more funds or sell assets to cover the shortfall.
Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. It operates on a technology called blockchain, which ensures transparency and security in transactions.
A loan is a sum of money borrowed from a lender that is expected to be paid back with interest over a specified period.
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