MicroStrategy is a leading Bitcoin seller thanks to its many large acquisitions. Although the company is worth $1 billion, it had invested a large portion of its funds in buying bitcoin. However, the vast majority of money that was used to buy all the bitcoin came from loans. The $2.4 billion in BTC bought by the company, which includes senior secured loans and convertible notes as well as bitcoin-backed loan, is a result of these loans.
Here’s How the Loans Look
To fund large amounts of its Bitcoin holdings, MicroStrategy used convertible notes. They mature and can then be converted into shares of stock. These notes are, in essence, a payment toward future stock ownership at the software company. Convertible notes amount to $1.75 Billion and are pegged at an interest rate of 0% to 0.755%. MicroStrategy is responsible for the majority of loans it has used to purchase bitcoin.
Other loans can be much smaller than the convertible notes. The senior secured loans is an example. MicroStrategy has only borrowed $500 million to buy bitcoin. However, these loans have a 6.1% interest rate.
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MicroStrategy also had secured loans backed by bitcoin. The loans were the first of their kind when taken out by MicroStrategy. This $205 million also was used to buy more Bitcoin with an interest rate around 4.4%.
According to the CFO, the Bitcoin-backed loan may be subject to a margin call. This is possible only if Bitcoin’s price drops significantly below $21,000. This is unlikely to happen given current market prices.Source: BTUCSD, TradingView.com Nevertheless, the possibility of this has sparked fear in investors and MicroStrategy’s stock price has taken a hit in the last couple of weeks.
| Source: BTUCSD on TradingView.com
Michael Saylor, CEO assured investors to not worryFortunately, the company does not have to worry about it as they hold more bitcoin than necessary to be collateral for their Bitcoin-backed loans.
MicroStrategy’s Bitcoin Holdings
MicroStrategy, which has more than 129,000 BTC under its belt, is still the biggest public bitcoin company in the world. At current prices, MicroStrategy is in serious financial trouble. Its 129,218 BTC are valued at $3.87 BTC.
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To purchase BTC, the company used $1.57 trillion from its profits. All of the remaining amount had been paid for with various loans. However, the company was vocal in its refusal to sell its BTC. It plans to continue to own it long-term. The company holds 0.615% in total bitcoin supply.
MicroStrategy’s bitcoin play is not all roses given that its bitcoin-backed loans carry the risk of a margin call that could reduce its position and the value of its holdings. But, it is possible that the company will quickly rise to the top of the value list if bitcoin continues its bull run and hits $100,000 like many experts predicted.
Featured Image from BitcoinSensus. Chart from TradingView.com
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