MicroStrategy is the largest publicly traded holder of Bitcoin with 130,000 BTC in its custody. Former CEO and now Executive Chairman Michael Saylor is a Bitcoin maximalist who started buying Bitcoin in 2020 after the Fed started printing money in response to the COVID-19 pandemic.
The problem is that MicroStrategy bought Bitcoin at an average purchase price of ~$30,000 per coin. Bitcoin’s price is hovering around $20,000, which means MicroStrategy has an unrealized loss of over $1.3 billion thanks to the current crypto bear market.
Things have gotten so bad that Michael Saylor decided to step down as CEO in 2022 to focus on Bitcoin. My guess is that Saylor couldn’t face $1.3 billion in losses with a straight face. He would have become the laughing stock on CNBC for buying Bitcoin and losing a ton of money.
Will MicroStrategy Sell Bitcoin at a Loss?
No. Michael Saylor claims that MicroStrategy adopts a long-term HODL strategy and never plans to sell a single satoshi.
However, if Bitcoin continues to crash then MSTR shareholders should worry about MicroStrategy selling its Bitcoin at a massive loss. There’s also the possibility of getting a margin called for the $200 million Silvergate loan as well.
I explain in my latest MicroStrategy SeekingAlpha article how the Silvergate loan works and why MicroStrategy has little chance of being margin-called:
MicroStrategy has little to zero chance of defaulting on its SilverGate loan unless BTC crashes to around $3,000 per coin. Michael Saylor tweeted that BTC must crash to $3,562 for the company to get margin called.
In the Q2 2022 earnings transcript, MicroStrategy CFO Andrew Kang explained how the SilverGate loan works and what would happen if Bitcoin price continues to fall.
The company pledged 30,000 BTC as collateral for the loan and still has 85,000 unpledged coins that are available for use.
The $205 million loan requires a LTV ratio of 50% ($410 million) or less so MicroStrategy can pledge more BTC if prices drop even further. As BTC falls in price, the value will decrease so the company could tap its 85,000 unpledged coin stash to maintain a solid LTV.
I don’t think Bitcoin will crash below $4,000 but I guess anything is possible in this current crypto environment. Bitcoin hovered around $5,000 during the temporary March 2020 crypto dip but I believe Bitcoin will bottom around $15,000 in January 2023 as we approach the 4th halving cycle.
MicroStrategy Will Encourage More Companies to Buy Bitcoin During the Next Crypto Bull Run
MicroStrategy looks foolish for buying so much Bitcoin at elevated prices but I believe the company wants to get a head start on the rest of Wall Street. Big tech players such as Google are accepting Bitcoin starting in 2023 and it’s only a matter of time until everyone else gets on board.
Once more companies accept and add Bitcoin to its balance sheet, MicroStrategy may be considered one of the smartest companies of all time. We’ll have to see if Michael Saylor’s aggressive Bitcoin bet pays off.
The chances of MicroStrategy panic selling Bitcoin are extremely low. Don’t believe the FUD articles that claim MicroStrategy dumped their holders. The SEC would require MicroStrategy to notify the public of any major transactions plus MicroStrategy would realize its Bitcoin losses during the worst possible time to sell.
I hold MSTR stock in my SEP IRA because I believe it will provide a wonderful retirement nest egg for me and my family.