Stocks of various companies invested in or tied to bitcoin are dipping to new lows. MicroStrategy – the software giant that initially began buying bitcoin in August of 2020 and has since become one of the cryptocurrency’s main institutional supporters – has seen its stock shares fall by as much as 26 percent in recent days. Hundreds of billions of dollars in market value have since vanished.
MicroStrategy Has Taken Some Serious Hits
The company has long been purchasing bitcoin as though it were the elixir of life. The world’s number one digital currency by market cap initially made waves with the company about two years ago and since then, MicroStrategy has continued its buying habits – even when the currency hasn’t done well.
Several purchases of the asset have occurred in the last few years, and for the most part, these plans have worked well for the company. MicroStrategy, at one point, owned close to $5 billion worth of the digital asset, though it would be wrong to assume that number is still accurate. The price of bitcoin has recently fallen to about $23,000, meaning all the 2021 gains we witnessed have been fully erased from the trading board.
During a recent interview, the company’s CFO Phong Le was asked how far bitcoin needs to fall for MicroStrategy to receive a “margin call on the Silvergate loan.” His response was:
As far as where bitcoin needs to fall, we took out the loan at a 25 percent loan-to-value. The margin call occurs [at] 50 percent loan-to-value. So essentially, bitcoin needs to cut in half or around $21,000 before we’d have a margin call.
MicroStrategy isn’t the only company suffering due to its bitcoin ties. Coinbase – one of the largest and most popular crypto exchanges in the western hemisphere – just watched its stock shares plunge by as much as 18 percent in the last few days.
The exchange – which started trading publicly on the Nasdaq in April of last year – has seen things just gradually go sour since then, and the company has also had to put a hiring freeze in place after claiming that 2022 would be the year where it works to expand itself to greater heights.
Is There Such a Thing as Too Much Bitcoin?
MicroStrategy has practically made a name for itself not through software, which is what it was initially known for, but through its many bitcoin buys. The firm, however, may be stuck in a dark place now that it has borrowed so much money through Silvergate and related banks to purchase additional crypto over the past year, and this may no longer be an option until the crypto market gets back on its feet.
“Too much of a good thing” is real, and in the case of bitcoin, too much BTC has caused MicroStrategy to incur some heavy losses.
