Michael Saylor is probably some of the fervent supporters of Bitcoin on the planet—and that’s saying one thing, given the just about cultlike group behind the world’s main cryptocurrency.
Saylor, an MIT graduate and the cofounder and CEO of the enterprise intelligence agency MicroStrategy, has grow to be a hero to the Bitcoin devoted ever since his firm started stockpiling the cryptocurrency in August 2020.
The CEO has gone as far as to name Bitcoin “freedom,” and “probably the most universally fascinating property in house and time.” And at Bitcoin 2022 Miami—the biggest Bitcoin occasion worldwide—Saylor was met by hundreds of cheering followers as he instructed the group to by no means promote their crypto.
Saylor’s Bitcoin urge for food has grown a lot that the CEO is now borrowing millions from banks so as to add extra of the cryptocurrency to MicroStrategy’s steadiness sheet. The collateral? That’s proper, extra Bitcoin.
MicroStrategy added one other $215 million value of Bitcoin at a mean buy value of $44,645 per coin within the first quarter, SEC filings present, bringing its whole holdings to 129,218 Bitcoins acquired for $3.97 billion, or $30,700 per coin.
At Bitcoin’s $39,800 value as of 4 p.m. ET on Wednesday, the corporate’s holdings have been value over $5.1 billion. The corporate’s market cap, then again, is roughly $4 billion.
MicroStrategy has stated it has no plans to sell its Bitcoin, and to date, its buy-and-hold technique has been worthwhile. However with Bitcoin’s value down roughly 35% previously six months, that could be altering.
On account of its standing as a quasi-Bitcoin ETF, and a pile of over $2.3 billion in long-term debt, MicroStrategy’s inventory is down over 20% previously month and practically 65% from its February 2021 all-time excessive of over $1,000 per share.
And if Bitcoin’s worth continues to fall, Saylor and firm may face one hell of a margin name.
The margin name from hell
MicroStrategy’s CFO Phong Le defined within the firm’s first-quarter earnings call on Tuesday that if Bitcoin’s value falls beneath $21,000, or round 50% from present ranges, it will likely be pressured to pony up extra cryptocurrency to again its $205 million Bitcoin-collateralized loan with Silvergate Financial institution that was used to purchase Bitcoin within the first place.
“We took out the mortgage at a 25% LTV; the margin name happens at 50% LTV,” Le stated. “So basically, Bitcoin wants to chop in half, or round $21,000, earlier than we’d have a margin name.”
The CFO famous that MicroStrategy nonetheless holds “fairly a bit” of uncollateralized Bitcoin that it may use to reply any potential margin name, nonetheless.
“As you possibly can see, we talked about beforehand we’ve got fairly a little bit of uncollateralized Bitcoin,” Le stated. “So we’ve got extra that we may contribute within the case that we’ve got loads of downward volatility. However once more, we’re speaking about $21,000 earlier than we get to some extent the place there must be extra margin or extra collateral contributors. So I feel we’re in a reasonably snug place the place we’re proper now.”
Nonetheless, taking out a mortgage collateralized by Bitcoin to purchase extra Bitcoin is a dangerous recreation. If the world’s main cryptocurrency falls and a margin name goes by, MicroStrategy can be put in a troublesome spot. MicroStrategy didn’t reply to Fortune’s request for remark.
This story was initially featured on Fortune.com