With the price of Bitcoin hovering around $22,000, Michael Saylor’s company, MicroStrategy , is seeing its investment rapidly dilute. MicroStrategy is currently losing over $1 billion on its Bitcoin holdings due to the price decline.
The company started buying Bitcoin in August 2020 at a price of around $12,000. Regular purchases in the following months brought the amount in the company’s hands to 129,918 Bitcoin. Now valued at approximately $2.8 billion.
Last month, Saylor cleared up via Twitter rumors about a call from his lenders over losses that the Bitcoin price crash was causing. “MicroStrategy has a term loan of $205 million and needs to hold $410 million as collateral ,” Saylor said.
MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. $MSTR has 115,109 BTC that it can pledge. If the price of #BTC falls below $3,562 the company could post some other collateral. See slides 11-12 in Q1 2022 presentation. #HODLhttps://t.co/9WHsIB6Usx
— Michael Saylor⚡️ (@saylor) May 10, 2022
For MicroStrategy to receive a wake-up call from its lenders, the price of Bitcoin must fall to $3,562. Therefore, theoretically, there is no low enough price at which the company will become a desperate seller of Bitcoin.
This wake-up call is known as a margin call, a call made by the lender for the investor to add more funds to their investment portfolio to support their position.
Historical lows of Bitcoin and the Bear Market
The major cryptocurrency has hit its lowest price in at least 18 months and the Bear Market is only making things worse. The following question may arise: What is a Bear Market? This is the name given to the loss of 20% of the value of the shares as a whole. This means that investors are selling more securities than they are buying.
Cryptocurrency-related stock holders have also been liquidating their shares to avoid further losses. MicroStrategy’s share price fell 24.32% during this Monday and the outlook does not seem very favorable.
MicroStrategy shares fell sharply on June 10 with the drop in Bitcoin. During a Bear Market, companies see their market value dilute and therefore their capitalization.
The consequences of the collapse
Due to the breaking of the lower support that Bitcoin had at $30,000, the decline caused millions of losses to companies related to the technology sector. One of them is MicroStrategy, although it is not the only one affected.
Coinbase stock price plunged 12% this Monday. And right now it is 85% below its all-time high last November.
Following Celcius suspending withdrawals, transfers, and transactions due to “ extreme market conditions, ” Bitcoin plummeted around $1,500 in minutes.
Another affected group is the miners, they are affected by the decrease in these prices, reaching what we previously called the “minimum price” of $22,000. This will cause those who do not find it profitable to keep their machines on to be disconnected from the network.
Companies like Marathon Digital (MARA), Riot Blockchain (RIOT) lost 23% and 24% of their value respectively in the last 5 days.
It is important to note that the price of cryptocurrencies is not separated from the world market, therefore, it also suffers from the Bear Market and financial crises. If you look at the ever-tightening policies of Western central banks, this pushes up bond yields and lowers stock prices.