Is MicroStrategy Solvent if Bitcoin Continues To Fall?

Michael Saylor and his company, MicroStrategy, are one of the most outspoken supporters of Bitcoin. In fact, the company has one of the largest holdings of the digital asset in the world. However, attention has recently been drawn to the possibility of the company becoming insolvent due to Bitcoin's price volatility.

In order to continue purchasing Bitcoin, Saylor has borrowed hundreds of millions of dollars from banks to add more Bitcoin to MicroStrategy’s balance sheet. With the loans being collateralized by Bitcoin, some are concerned about the future of MicroStrategy since Bitcoin’s price has fallen by 35% in the past 6 months.  

SEC filings show that MicroStrategy purchased $215 million in BTC during the first quarter of 2022 while sitting at an average price of $44,645. The company’s Bitcoin holdings now amount to 129,218 BTC. 

Despite Bitcoin's falling price, MicroStrategy has no plans to sell at this time. Saylor recently took to Twitter saying, “MicroStrategy has a $205M term loan and needs to maintain $410M as collateral.” He further explained that if Bitcoin falls below $3,562, MicroStrategy would be able to post another form of collateral. At the time of this writing price sits at $29,245.89.

MicroStrategy's President and Chief Financial Officer (CFO) Phong Le discussed plans to “acquire and hold Bitcoin long term” during the first quarter earnings call. He also discussed that Bitcoin’s price would need to be cut in half (falling below 21,000) before the company will need to put up additional collateral for its $205 million, three-year loan with Silvergate Bank.

Phong Le addressed a potential margin call saying, “As you can see, we mentioned previously, we have quite a bit of uncollateralized Bitcoin. So, we have 95,643 encumbered Bitcoin...we could contribute in the case that we have a lot of downward volatility.” He further explained that MicroStrategy is still comfortable with current numbers and still has a way to go before margin calls or collateral contributors become a concern.