With Bitcoin’s price falling, reports have circulated that MicroStrategy might be forced to repay its $205 million Silvergate loan. On Tuesday, firm CEO Michael Saylor clarified how much collateral is required for the loan.
Bitcoin Loan from MicroStrategy
According to Saylor, the loan needs $410 million in maintenance collateral to be alive, which is more than double the loan’s value.
MicroStrategy took out a Silvergate loan in late March and utilized the money to boost its Bitcoin holdings by 4,167, bringing the total to 129,218 BTC. In addition, the loan is Bitcoin collateralized, which means the company’s current cryptocurrency holdings secure it.
It’s usual for traders who take out these types of loans to be “liquidated” when the price of Bitcoin falls. Liquidation occurs when a person’s collateral is insufficient to fund their position, forcing them to liquidate their assets. Traders across the market lost almost $300 million in liquidations when Bitcoin fell below $31,000 yesterday.
Yet, as per Saylor, MicroStrategy has a long way to go before suffering a similar fate. Until the price of Bitcoin falls below $21,062, the firm’s 19,466 Bitcoin will suffice as collateral.
If it reaches this amount, the CEO says he will simply contribute more of the company’s remaining 115,109 Bitcoin to the debt. If fully committed, the loan may be kept until it reaches a price of $3,562 – at which time MicroStrategy can still use other types of collateral.
As per MicroStrategy’s website, the loan has a three-year duration and a 3.75 percent minimum interest rate. MicroStrategy set aside a $5 million cash reserve when it was created to cover interest and issuance payments. It also doesn’t prevent the corporation from taking on more debt.
Bitcoin at MicroStrategy Is Submerged
MicroStrategy’s whole Bitcoin stake has technically gone underwater for the first time in months due to the bear market. Despite the average Bitcoin buying price being $30,700, the price fell below $30,000 for the first time since July 2021 on Monday.
This hasn’t rocked Saylor’s faith in the asset. While it rained yesterday, the CEO joked about having to return to work at McDonald’s.