Michael Saylor margin call if Bitcoin dumps below $21,000

[bbc.reporter]

I am quite certain their position on taking a loan against their bitcoin to buy more bitcoin is safe because they have more bitcoin to deposit in their account to avoid a margin call. However, taking leverage by borrowing against a volatile asset to buy the same volatile asset is very risky. The real whales of the cryptospace, Sam Bankman Fried, Changpeng Zhao and Arthur Hayes and the cryptofunds who follow them can manipulate the market to liquidate Michael Saylor.



MicroStrategy’s CFO Phong Le explained in the company’s first-quarter earnings call on Tuesday that if Bitcoin’s price falls below $21,000, or around 50% from current levels, it will be forced to pony up more cryptocurrency to back its $205 million Bitcoin-collateralized loan with Silvergate Bank that was used to buy Bitcoin in the first place.

"We took out the loan at a 25% LTV; the margin call occurs at 50% LTV,” Le said. “So essentially, Bitcoin needs to cut in half, or around $21,000, before we’d have a margin call.”

The CFO noted that MicroStrategy still holds “quite a bit” of uncollateralized Bitcoin that it could use to answer any potential margin call, however.

“As you can see, we mentioned previously we have quite a bit of uncollateralized Bitcoin,” Le said. “So we have more that we could contribute in the case that we have a lot of downward volatility. But again, we're talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributors. So I think we're in a pretty comfortable place where we are right now.”

Read in full https://fortune.com/2022/05/04/michael-saylor-microstrategy-margin-call-bitcoin/

[GreatArkansas]

Exactly! It is very risky especially here in cryptocurrency.
I believe Michael Saylor will be careful in his next decision about their next transaction on Bitcoin whether they will buy or sell. We all know Michale Saylor is a long-term believer in Bitcoin and one of the big players right now on Bitcoin. I am still looking forward what his next move.
I am also curious if those big crypto players especially exchange founders can do those things to liquidate Michael Saylor, I don't think so, what benefit can they gain?

[mk4]

MicroStrategy holds crap ton of spot bitcoin on their balance sheets; they could just add more and more collateral so they wouldn't get liquidated. Unless we nuke far far below the $21k threshold, the risks for liquidation are virtually nonexistent.

[sxy118]

I am quite certain their position on taking a loan against their bitcoin to buy more bitcoin is safe because they have more bitcoin to deposit in their account to avoid a margin call. However, taking leverage by borrowing against a volatile asset to buy the same volatile asset is very risky. The real whales of the cryptospace, Sam Bankman Fried, Changpeng Zhao and Arthur Hayes and the cryptofunds who follow them can manipulate the market to liquidate Michael Saylor.



MicroStrategy’s CFO Phong Le explained in the company’s first-quarter earnings call on Tuesday that if Bitcoin’s price falls below $21,000, or around 50% from current levels, it will be forced to pony up more cryptocurrency to back its $205 million Bitcoin-collateralized loan with Silvergate Bank that was used to buy Bitcoin in the first place.

"We took out the loan at a 25% LTV; the margin call occurs at 50% LTV,” Le said. “So essentially, Bitcoin needs to cut in half, or around $21,000, before we’d have a margin call.”

The CFO noted that MicroStrategy still holds “quite a bit” of uncollateralized Bitcoin that it could use to answer any potential margin call, however.

“As you can see, we mentioned previously we have quite a bit of uncollateralized Bitcoin,” Le said. “So we have more that we could contribute in the case that we have a lot of downward volatility. But again, we're talking about $21,000 before we get to a point where there needs to be more margin or more collateral contributors. So I think we're in a pretty comfortable place where we are right now.”

Read in full https://fortune.com/2022/05/04/michael-saylor-microstrategy-margin-call-bitcoin/

The crypto market could be even worse than we could have imagined if MicroStrategy got liquidated

[ItsNotSean]

Microstrategy aside, we are in a massive negative feedback loop of untolled thousands of leveraged crypto longs being liquidated while their equity positions are facing the same problems.

This is the scene in the film Margin Call where Jeremy Irons informs everybody that "You don't understand! This!Is!It!"

The key difference is the US Federal Reserve had interest rates back then around 4-5%, a balance sheet of about $50 BILLION, and no meaningful inflation to address. I.e., they had unlimited tools to work with to fix it.

There is nothing that any central bank can do this time. This time, it really IS it.

[Flexystar]

This or they could go get more loan to safe enter at the current levels. They could even earn huge profits out of it if bitcoin breaks the resistance properly. However, that is another level of risk. Now it’s up to microstrategy plan of action whether to perform such risky bet. I believe since they have taken such huge collateral loans then it won’t be much of issue if they do it again. Nonetheless they have already earned optimum profits from the previous investment. Whales definitely in dilemma at this point as bitcoin is more than 50% down than the initial price. (ATH)

[NeuroticFish]

I am quite certain their position on taking a loan against their bitcoin to buy more bitcoin is safe because they have more bitcoin to deposit in their account to avoid a margin call. However, taking leverage by borrowing against a volatile asset to buy the same volatile asset is very risky. The real whales of the cryptospace, Sam Bankman Fried, Changpeng Zhao and Arthur Hayes and the cryptofunds who follow them can manipulate the market to liquidate Michael Saylor.

Maybe they can (which I am not that sure), but will they?!
I think that it's just a little over-pumped drama. Yes, MicroStrategy is exposed. Yes, in theory, the price can go under 21k (iirc in the previous 4-year cycle the low was around 1/7 or the ATH and that would translate to 10k).
But I find even the current 30k (or a little under) very appealing to many and I am also convinced that Michael Saylor has last resort resources he doesn't want to unveil (and he may even buy more as soon as he gets liquidity).

So yeah, it's just newspaper-like ifs and more ifs. I would not be so worried for MicroStrategy. At least not yet.

[DaveF]

It would have to fall below $21k
Then it would have to stay there for an extended period.
MS would then have "X" amount of time to either come up with the money or liquidate.
Not a real big risk considering they can raise funds other ways OR add other BTC purchases to their agreement.

For those of you that don't know that is common in a lot of financial places. You leverage X if it looks bad and you might be forced to liquidate you can add to X.
It's even mentioned in the quote:

where there needs to be more margin or more collateral contributors

-Dave

[ultrloa]

This or they could go get more loan to safe enter at the current levels. They could even earn huge profits out of it if bitcoin breaks the resistance properly. However, that is another level of risk. Now it’s up to microstrategy plan of action whether to perform such risky bet. I believe since they have taken such huge collateral loans then it won’t be much of issue if they do it again. Nonetheless they have already earned optimum profits from the previous investment. Whales definitely in dilemma at this point as bitcoin is more than 50% down than the initial price. (ATH)

Its not that easy as we think though maybe they are not thinking about that option since it will give them double risk if they do that. Maybe they have another balance to use for taking buy backs and for sure they are professionals to know on what will be their next move to do.

Maybe they are creating fear so that they can test if bitcoin would go lower on what price they say so let see what will be the next chapter of market drama in next following months.

[coolcoinz]

They did their math before taking the loan and knew the risk is minimal. 21k is below mining profitability, below fair value, below 200 week sma that used to always support bitcoin and at the previous ATH which historically has never been breached once a new cycle ath has been reached.
Also, you might look at it and see a grim picture, but we've been here 3 times before. We've spent 3 months at 30k in 2021 and came back there in January 2022. It's not like 30k is the end of the world or something. There's much more room to the upside now since we are 60% down from the ATH.

As for others trying to liquidate him to get his coins, many centralized exchanges are corrupt. You could see how the Chinese were faking volume in 2014 which lead to a strange event where they got raided by the government and suddenly their numbers fell by like 90% because they were being watched and had to stop faking it. There's no stopping guys like CZ if they want to fake a massive dump using their api, without really selling anything.
The only people affected by this will be traders who use these platforms. Bitcoin doesn't care what a bunch of traders do. It was there before Mt Gox and it was there when Gox was gone. It was there before Binance and it's going to outlive it.

[Synchronice]

They did their math before taking the loan and knew the risk is minimal. 21k is below mining profitability, below fair value, below 200 week sma that used to always support bitcoin and at the previous ATH which historically has never been breached once a new cycle ath has been reached.

I am new in cryptocurrencies compared to the majority of users here, so, please can you kindly remind me, was $3250 below mining profitability in 2018? ATH for that years was 20K USD, bitcoin lost 83% of ATH after 1 year. This makes me think that the risk still exists, especially when the price is so low right now and the probability of someone crazy like Elon Musk will come and ruin the already ruined party. Also, nearly 1 year ago we saw exactly this bitcoin value and I don't like that. Back then there were reasons, Elon Musk's tweets, China's statements but now?

[Luzin]

But I find even the current 30k (or a little under) very appealing to many and I am also convinced that Michael Saylor has last resort resources he doesn't want to unveil (and he may even buy more as soon as he gets liquidity).

So yeah, it's just newspaper-like ifs and more ifs. I would not be so worried for MicroStrategy. At least not yet.

Yes, it looks like this is the reason Bukele dared to buy 500BTC in the $30,700 area. They announced it on Bukele's twitter. In fact many people believe the $29,000-$30,000 area is the bottom area so many have started buying again. I think microstrategy has thought of additional strategies to avoid margin calls. I think they not only have more BTC in the Spot market but fiat to hold the sell market before reaching their liquidation price. In the end I think this is also a market strategy, to bring the market opinion that the price will remain above the margin call Microstrategy.

[Lucius]

I am new in cryptocurrencies compared to the majority of users here, so, please can you kindly remind me, was $3250 below mining profitability in 2018? ATH for that years was 20K USD, bitcoin lost 83% of ATH after 1 year. This makes me think that the risk still exists, especially when the price is so low right now and the probability of someone crazy like Elon Musk will come and ruin the already ruined party.

I'm not an expert on profitability when it comes to mining, but I think you should read the next post by @franky1. Most people involved in BTC mining do it for profit, and the fact is that it is still a very profitable business.

Also, nearly 1 year ago we saw exactly this bitcoin value and I don't like that. Back then there were reasons, Elon Musk's tweets, China's statements but now?

You, like most, are focused only on price, so although you give some reasons for what happened then, you do not take into account what is happening today. I don't know where to start, but first let's consider the consequences of the pandemic (which is still going on), the inflation that is the biggest in the last 40 years, the war in Ukraine, rising interest rates in the US, UK and Australia and the fiasco with this so-called stablecoin.

This is the perfect shit storm that makes a complete mess for most investors who sell for fear of losing even more, and while they panic, others like Buffett are investing $40 billion in less than a month. And you know what, they'll laugh again and be even richer after all this is over.

[OgNasty]

According to Saylor, this talk of him being liquidated is just FUD.  You can see in his tweet today he claims that his company can survive a drop below $10K without an issue, and even below $4K he seems to think he'll be able to keep his leveraged trade active.

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. #HODL

https://twitter.com/saylor/status/1523996525151539203

Not sure if I totally believe him here, but he certainly has some options before letting his current trade get liquidated.

[mk4]

https://twitter.com/saylor/status/1523996525151539203

Not sure if I totally believe him here, but he certainly has some options before letting his current trade get liquidated.

I'm pretty sure he can't just outright lie about stuff like this, right? He handles a public company. Providing fake/misleading information about the company and their holdings will most definitely get him in huge trouble.

[DaveF]

https://twitter.com/saylor/status/1523996525151539203

Not sure if I totally believe him here, but he certainly has some options before letting his current trade get liquidated.

I'm pretty sure he can't just outright lie about stuff like this, right? He handles a public company. Providing fake/misleading information about the company and their holdings will most definitely get him in huge trouble.

Why? Musk keeps doing it
But seriously, I don't think he is worried at all. It's not like a TV or movie drama were you get liquidated at the end of the day.
Big money moves differently then small money. For some reason people don't want to hear that. If my brokerage account falls below certain margin levels even I have a couple of days to add funds.
Although I can't give an exact time someplace the size of microstrategy probably has weeks if not months.
They don't want him liquidating and paying off the loan, if they do then they don't get interest on the money anymore....

-Dave

[o48o]

https://twitter.com/saylor/status/1523996525151539203

Not sure if I totally believe him here, but he certainly has some options before letting his current trade get liquidated.

I'm pretty sure he can't just outright lie about stuff like this, right? He handles a public company. Providing fake/misleading information about the company and their holdings will most definitely get him in huge trouble.

I don't think he needs to lie about this. Surely he finds more collateral, it's not like he is all in on some leveraged trade. Also he has very powerful friends who understand crypto to lend him collateral if it comes to that. You don't need to be smart to make money but no one in his position is so stupid that they would lose everything with a leveraged position.

[stompix]

I am new in cryptocurrencies compared to the majority of users here, so, please can you kindly remind me, was $3250 below mining profitability in 2018?

There is no such thing as a level above or below profitability.
Mara mines with 2 cents power kWh with s19 and s19pros, Riot in another location at 3.5 with same new gear, some miners in Iceland with cheap rates but with older s15 s17, there are people who still mine with s9 at near-zero cheap energy.  This is not like other mining industries, for example, if half of the oil miners would shut down the rest won't be able to produce the same amount with the same costs.

If miners right now have 200exa, the revenue of 30 million a day, and a cost of 8 million in electricity, assuming half of them won't be able to keep mining you're going to have 100 exa, the revenue of 30 million, and a cost of 4 million in energy, making it twice as profitable, making some miners come back. There is no such thing as below profitability, for that to happen it would mean every single miner would have to mine at a loss, impossible, some will quit before others hit that.

Also, the revenue per TH/s day is still double the one in 2020, and with better efficiency, it will take a price of 15k to reach back that level.

[coolcoinz]

They did their math before taking the loan and knew the risk is minimal. 21k is below mining profitability, below fair value, below 200 week sma that used to always support bitcoin and at the previous ATH which historically has never been breached once a new cycle ath has been reached.

I am new in cryptocurrencies compared to the majority of users here, so, please can you kindly remind me, was $3250 below mining profitability in 2018? ATH for that years was 20K USD, bitcoin lost 83% of ATH after 1 year. This makes me think that the risk still exists, especially when the price is so low right now and the probability of someone crazy like Elon Musk will come and ruin the already ruined party. Also, nearly 1 year ago we saw exactly this bitcoin value and I don't like that. Back then there were reasons, Elon Musk's tweets, China's statements but now?

Yes it briefly was below the level of profitability. It happened twice in the recent years, once in 2018 and once in 2020, although the 2020 crash was mainly due to low liquidity on exchanges. Too much inflow of coins compared to current market orders. The fair value was much higher but the exchange price dropped for a moment which did not affect miners at all, so such an event can happen again, but this would not liquidate Michael Saylor. For him to be in trouble the price would have to stay at that level, not go there because a whale holding 10k BTC suddenly decides to throw the towel.

Anyway, mining profitability isn't a rule that says when we go below it miners will stop mining, because it hasn't happened yet. The production cost is only a guideline, but we've managed to follow it for many years. When the price goes too low miners will stop selling and rather get money from other sources like loans, which decreases the inflow to exchanges and stabilizes the price.

You feel that it's possible we'll repeat 2018 in the lows, but we have not repeated 2017 or 2013 in the highs. What we've experienced was the weakest bull market in history.

[franky1]

MicroStrategy’s CFO Phong Le explained in the company’s first-quarter earnings call on Tuesday that if Bitcoin’s price falls below $21,000, or around 50% from current levels, it will be forced to pony up more cryptocurrency to back its $205 million Bitcoin-collateralized loan with Silvergate Bank that was used to buy Bitcoin in the first place.

this does not mean they have to sell some coin or pay out some coin. it just means they lock up some more coin in escrow to keep the 'collateral' level at a certain amount

it does not cause the loan to default or a bank to close the contract and demand payment.
(its like 'staking' it. you dont actually lose ownership. u just put it aside in reserve as a promise to do a certain task(repay loan in small drips in fiat long term))

..
imagine you have 3 houses worth say $3m combined. ($1m each)
and you decide you want a 4th home but dont want to waste years saving up $1m of cash to buy it.

so instead. you put one home up as collateral for a mortgage to get $1m in cash instantly to buy the forth home. with terms that you have to slowly over time pay the bank back $1m in cash. or they take your first home.
where the clause is. if the housing market shrinks by half. you will have to put up 2 homes up as collateral..
of course none of this means you lose any homes. they are just sat there still accessible by you to live in.and just pay the monthly repayments in fiat..  but if you dont pay up the fiat cash monthly loan repayments. eventually they might take the homes.
so as long as you know you can afford your monthly repayments. there is no harm

..
micro strategy has the cash. but knows they dont need to throw the whole sum at once. where by they can instead just drip feed the cash later, whilst getting a lump sump of bitcoin upfront in a deal.

they are not needing to touch their bitcoin reserves for years anyway. so they are just sitting there anyway doing nothing.. so why not use them as collateral.., so there is no problem with doing multisig with an escrow/trust/middleman while they settle the loan.. its not like he need to access his coin short term. its not like he cant afford the future monthly payments..
so he gets to buy new bitcoin now while cheap. not lose the bitcoin he already has, and ontop of that not have to shell out millions in fiat instantly from his own pocket in one go.. win win win

..
imagine it this way.
interest rate is 2%.. inflation is 2% (demo numbers)
and you have two choices. work minimum wage, and save, to then buy bitcoin in one lump in 2 years time.. once you have what you hope is enough to buy a whole bitcoin
or
get a loan today buy a whole bitcoin today. and then pay repayments to the exact same amount you would have had to put aside as savings over the next two years.
the answer is obvious.. buy now pay later
..
infact loans were meant to be designed for those that can afford the loan amount but choose 'buy now pay layer' as a economic tool advantage of keeping wealth and accumulating wealth rather than spending every last penny you have in one shot..

loans only go bad if you never have the fiat cash to repay the loan. thus risking the collateral.
micro strategy is not putting his btc collateral at risk because he can make the loan repayments. so its not a problem for him