Saylor Pledges More Bitcoin to Back Loan From Silvergate Following Price Drop

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Saylor Pledges More Bitcoin to Back Loan From Silvergate Following Price Drop
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Michael Saylor, CEO, and co-founder of MicroStrategy reassures lender Silvergate Bank that the company will post alternative collateral for a $205M loan should BTC dip below $3,562.

As bitcoin tracked stocks in the last 24 hours, falling to levels as low as $29,000, the co-founder and CEO of business intelligence firm MicroStrategy, Michael Saylor, allayed fears that its bitcoin reserves could prove insufficient to collateralize a $205M loan. “MicroStrategy has a $205M term loan and needs to maintain $410M as collateral,” the bitcoin bull said, referring to money borrowed by MacroStrategy, a subsidiary of MicroStrategy. MacroStrategy signed a Credit and Security Agreement with Silvergate Bank to borrow $205M in March 2022, using bitcoin held by a third-party and $5M in cash reserves as collateral. As per the agreement, MicroStrategy is required to ensure that a loan to value ratio of 50% is always maintained, excluding the $5M cash reserve held in a Silvergate account. As of March 31, 2022, MicroStrategy had pledged 19,466 of the bitcoins held as collateral, representing $914M, with each BTC worth around $46,000.

We have a lot more, says CFO

At current prices ($31,000), the 19,466 bitcoins pledged would still be sufficient at $583M, needing to drop to about $21,000 to necessitate a margin call, said CFO Phong Le. In this context, a margin call refers to the lender’s demand on the borrower to maintain a certain loan-to-value ratio. “We have more that we could contribute in the case that we have a lot of downward volatility,” he said.

Accordingly, Saylor is preparing for a sub-$10,000 scenario, indicating that his company could pledge up to 115,109 bitcoins. These additional coins would ensure that the loan to value ratio would remain at 50% should bitcoin dip as low as $3,562. Beyond that, he said that his company would ensure additional collateral was available. However, he didn’t clarify where that collateral could come from.

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Some view this scenario as unlikely, however. One Twitter user, ZanderQuinn1, responding to Saylor, tweeted, “…Bitcoin will never see 3k again, an Antminer costs like 6-8k,” arguing that bitcoin would never drop as low as Saylor was suggesting since an Antminer computer used to create new bitcoins itself costs between $6,000 and $8,000.

Saylor still bullish, despite concerning numbers

MicroStrategy’s bitcoin holdings saw their value plummet to below their average purchase price when the price for a single bitcoin dropped under $30,700 yesterday. Furthermore, shares of MicroStrategy were down 58% this year, reflecting a souring sentiment toward tech stocks, reports Barron’s.

According to a Bloomberg report, Saylor remains undeterred and intends to buy more bitcoin. The company holds 129,218 bitcoins as of April 4, 2022, worth over $4B, around 2.5 times larger than the holdings of its nearest competitor, Tesla.

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