Bitcoin Hovers Close to MicroStrategy Price ‘Margin Call’

A stock chart with a representation of bitcoin is shown in this illustration taken on March 13, 2020. REUTERS/Dado Ruvic/File Photo

SINGAPORE (Reuters) – Bitcoin approached a price level on Tuesday, which could force software company MicroStrategy. (MSTR.O) To add more tokens in exchange for a Bitcoin-backed loan or launch the sale of some of its massive holdings, putting the fragile cryptocurrency markets on edge.

MictroStrategy, a strong investor in bitcoin, said it has borrowed $205 million from crypto bank Silvergate Capital. (SI.N) In March, with a three-year loan mostly secured against about 19,466 bitcoins.

MicroStrategy’s head, Fong Lo, said in an online broadcast in May that if the bitcoin price drops below $21,000, it will trigger a “margin call” or additional capital demand.

Bitcoin fell below that level to $2,0816.36 on Tuesday before settling near $22,000. Usually a margin call is met by providing more capital or liquidating the loan guarantee.

It was not clear if the price movements had any consequences for MicroStrategy, or if the company actually provided more bitcoin or cash to secure the loan.

The company and Silvergate did not respond to requests for comment.

MicroStrategy said in May that the company had 95,643 “unlinked bitcoins” that could be used as collateral. Based on the last Bitcoin traded price of $22,254, these coins have a value of $2.1 billion.

“We can contribute more bitcoin to the escrow package, so … we don’t get into a margin call situation,” he said.

Mark Palmer, head of digital asset research at BTIG, has played down the risks of a margin call that forces MicroStrategy to reduce its holdings. “We don’t see any circumstance in which MicroStrategy will need to sell any of its bitcoin holdings,” he said.

However, the situation, even if it didn’t result in MicroStrategy selling anything, was enough to keep the mood tense.

MicroStrategy shares fell 3% and Silvergate lost 2% on Tuesday, extending losses of 25% and 17% on Monday in line with the decline in crypto assets.

Additional reporting by Tom Westbrook in Singapore and Medha Singh in Bengaluru; Editing by Aaron Coeur

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