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Bitcoin hovers close to the MicroStrategy ‘margin call’ price

A stock graph is seen with a representation of bitcoin in this photo illustration taken March 13, 2020. REUTERS / Dado Ruvic / File Photo

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SINGAPORE, June 14 (Reuters) – Bitcoin approached a price level on Tuesday that could force software firm MicroStrategy Inc (MSTR.O) to add more tokens to a bitcoin-backed loan or trigger the sale of some of its huge holdings, and put fragile cryptocurrency markets on the edge.

MicroStrategy, an aggressive investor in bitcoin, said they borrowed $ 205 million from the crypto bank Silvergate Capital (SI.N) in March, with the three-year loan mostly secured against around 19,466 bitcoins.

If the bitcoin price fell below around $ 21,000, it would trigger a “margin call” or a demand for extra capital, MicroStrategy President Phong Le said in a webcast in May.

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Bitcoin fell below this level to $ 20,816.36 on Tuesday before stabilizing near $ 22,000. Usually, a margin call is met by raising more capital or liquidating the collateral of the loan.

It was unclear whether the price movements had any consequences for MicroStrategy, or whether the company already provided more bitcoin or cash to secure the loan.

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

MicroStrategy’s Le said in May that the company had 95,643 “uncharged bitcoin” that it could use as additional security. Based on bitcoin’s latest trading price of $ 22,254, the value of these coins was $ 2.1 billion.

“We could contribute more bitcoin to the security package, so … we are not in a situation with a margin call,” he said.

Mark Palmer, head of digital asset research at BTIG, downplayed the risk of a margin call forcing MicroStrategy to cut its holdings. “We do not see any circumstances where MicroStrategy will need to sell any of its bitcoin holdings,” he said.

Still, the situation, although it does not result in MicroStrategy selling anything, was enough to keep the mood nervous.

MicroStrategy shares fell 3% and Silvergate lost 2% on Tuesday, extending losses from their 25% and 17% losses on Monday in line with a withdrawal of cryptocurrencies.

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Reporting by Tom Westbrook in Singapore and Medha Singh in Bengaluru; Editing by Arun Koyyur

Our standards: Thomson Reuters Trust Principles.

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