‘Bitcoin debt’ – Buying Bitcoin with a mortgage… Stocks plunge on the risk of ‘margin call’
An analysis has been raised that an American software company that even paid bank debt and invested in the virtual currency Bitcoin suffered a loss of close to 1.3 trillion won due to the Bitcoin price crash on the 13th (local time).
According to Bloomberg News on the same day, enterprise software maker MicroStrategy lost nearly $1 billion in bitcoin investment.
To date, MicroStrategy has invested $3.97 billion to purchase 130,000 Bitcoins.
As of the first quarter, this company’s average purchase price of Bitcoin was $30,700.
The company has been buying Bitcoin intensively since 2020 under the leadership of CEO Michael Sailor.
Over the past two years, the company has aggressively increased its holdings of bitcoins instead of cash on its balance sheet in the name of inflation hedges (investing assets to hedge against the depreciation of currency) and even took out bank debt to buy bitcoins.
In March, Silvergate took out a $250 million loan with their bitcoins as collateral, and the debt was used to purchase more bitcoins.
However, as the price of cryptocurrencies plummeted to the $22,000 level on the same day, the loss of Bitcoin on the books reached $1 billion, Bloomberg News reported.
MicroStrategy, which had ‘bitcoin debt’, also faced the risk of a ‘margin call’ in which it had to pay additional mortgage margin to the bank.
The company announced last month in its earnings call conference call that it would face a margin call if Bitcoin fell to $21,000.
Market Insider, an economic media outlet, said, “If MicroStrategy receives a margin call, it will be forced to provide additional collateral to the bank or sell its Bitcoin holdings.”
Shares of MicroStrategy plunged 25.18% to $152.15 on the New York Stock Exchange on the same day as concerns about the bitcoin price plunge and margin calls grew.
As Bloomberg reported, “CEO Sailor’s bitcoin bets backfired as microstrategy stocks became highly correlated with bitcoin.“