On the first day of February, MicroStrategy announced the purchase of 660 more BTC, paying an average price of $37,865 per unit. The purchase took place during a turbulent start to the month in terms of the price of BTC.
In this way, the company invested US$ 25 million and surpassed the barrier of 125 thousand BTC in custody. The total is worth $3.8 billion at current prices. This means that MicroStrategy’s BTC was purchased at an average price of $30,200 per unit.
At the same time, CEO Michael Saylor reinforced that the company remains firm in its long-term strategy. What’s more, MicroStrategy can bet on risky leverage to increase its exposure by up to 100%.
BTC collateralized loan
Speculation began when Saylor gave an interview to Bloomberg in January. One of the themes was the sharp drop in BTC that month, which ended up as the third worst January in history in terms of prices.
Asked about MicroStrategy’s exposure to BTC, Saylor insisted he has no intention of backing out of his multi-billion gamble. In fact, the CEO stated that he does not intend to sell a single satoshi, only to buy.
However, Saylor was even more pointed during an interview with Emily Chang, presenter of Bloomberg Technology. In addition to repeating his strategy, Saylor said that he can utilize his entire BTC fortune to leverage himself even more.
Currently, the company has carried out several rounds of debt funding to buy the cryptocurrency, especially in low moments. With this move, Saylor gained access to capital at a lower cost and lower risk in operations.
But the CEO pointed out that MicroStrategy can go further and pursue an even more aggressive strategy. In this sense, the company would use its own BTC as collateral to obtain more loans.
“MicroStrategy is more aggressive in buying BTC, let’s look at various financing options. This includes borrowing up to 110,000 BTC as collateral and then using the amount to reinvest in more BTC,” said the CEO.
Currently, 110,000 BTC would correspond to around 92% of all MicroStrategy capital in the cryptocurrency. If the company were to actually take out this loan, it could raise up to $4.4 billion and raise its holdings to over 235,000 BTC.
However, this would be a very risky bet, and could even jeopardize the solidity of the company itself. That’s because according to Yahoo! Finance, MicroStrategy has $3.93 billion in market cap.
In short, Saylor’s leverage would correspond to 112% of the value of the entire company. If successful, the company and Saylor would become even richer. But in case of failure, the company would even risk going bankrupt or having to sell its BTC.
The structured transaction is different from leverage. The level of risk is much lower while the guarantee will likely outweigh the added value by some times. So, even if the price of BTC drops (one of the risks) the guarantee still covers the credit value and avoids liquidations.
Many bitcoiners – like Saylor himself – refuse to sell their BTC. Therefore, using it as collateral is a practical way of not having to sell and lose your investment. At the same time, the loan provides access to money without the need to sell BTC.