Erik Weijers, 9 months ago

Is a possible margin call for MicroStrategy a risk?

While the price of stocks and crypto is not holding up great, a report is circulating with comments from the CFO of MicroStrategy. There is talk of the company getting a margin call if Bitcoin would drop to $21.000. MicroStrategy has about 130,000 Bitcoin on its books.

What's going on? The company MicroStrategy has been aggressively buying up Bitcoin since July 2020. At first they paid for it with their dollar reserves. When they ran out of those they looked for other financial instruments to buy more Bitcoin. For example, they issued several rounds of bonds and borrowed over $200 million from Silvergate Bank.

The news of the margin call relates only to that last loan, which they took out when Bitcoin was around $42,000. At 50% of that value, they would get a margin call, which means they have to put up extra money to cover the loan. So it is true that this margin call is not unthinkable. At that moment they would have to pay up. However, this is not a major problem for MicroStrategy. They can do that with dollars or with a portion of their non-collateralized Bitcoin. Where the FUD comes from is the idea that their entire Bitcoin position could be liquidated. Not true.

None of this is to say that borrowing fiat to buy crypto is without risk: quite the contrary. The game of leverage trading on certain exchanges can lead to the loss of your entire position. There you don't get a margin call either.

Billionaire investor Paul Tudor Jones remains bullish

Amidst all the violence of the Fed trying to hurt the market (interest rates will be raised, as expected, by 0.5% again), it is good to hear a positive story. "It's hard not to be long crypto," said renowned investor Tudor Jones. He was one of the first of the older guard of billionaires to openly get into Bitcoin in 2020.

"I see this generational divide and it's a digital divide. [older people] like me are scrambling as fast as we can to understand it. I see it in my quant group, with my kids' friends. Many of the smartest minds that come out of colleges today are going into crypto. The number 1 thing holding it back are governments [because they] lose the ability to control the supply of money."

Tudor Jones says he currently has a "modest" position in crypto.

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