A look at the $2.4 billion loan from MicroStrategy used to buy Bitcoin

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Software company MicroStrategy cemented its position as a major Bitcoin player with its many large purchases. The company, which is valued at $1 billion, had invested a significant portion of its own funds in buying BTC, but the the majority of the money used to buy all bitcoin came from loans. These loans, which include convertible notes, senior secured loans, and bitcoin-backed loans, account for $2.4 billion of his $3.97 billion in BTC purchases.

What loans look like

MicroStrategy had used convertible notes to fund a good portion of its bitcoin holdings. These notes are converted into shares of the company upon their maturity. So basically it’s a payment towards the future shareholding of the software company. The convertible notes represent 1.75 billion dollars and are indexed at an interest rate of 0% to 0.75%. Constituting by far the largest portion of the loans that MicroStrategy has taken out to buy bitcoin.

Other borrowings are much lower compared to convertible notes. An example is senior secured loans. The data shows that MicroStrategy had only taken out $500 million in these senior secured loans to purchase bitcoin. These, however, carry a higher interest rate at 6.1%.

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Finally, MicroStrategy had also secured bitcoin-backed loans. These loans were the first loans of their kind when they were taken out by the software company. The $205 million was also used to buy more BTC with an interest rate of around 4%.

The Bitcoin-backed loan carries the possibility of a potential margin call, as noted by the CFO. However, this is only possible if the price of BTC were to drop significantly from this point to $21,000 and below. Given current prices, there is still a long way to go before this becomes an issue. Nonetheless, this possibility has sparked fear among investors, and MicroStrategy’s stock price has taken a hit over the past two weeks.

| Source: BTUCSD on TradingView.com

CEO Michael Saylor has reassured investors not to worry about it, as the company has more than enough BTC to serve as collateral for its bitcoin-backed loans should prices ever fall that low.

MicroStrategy Bitcoin Holdings

MicroStrategy remains the public company with the largest bitcoin holdings in the world with over 129,000 BTC to its name. The total BTC entry price is $3.97 billion and at current prices, the software company is losing money as its 129,218 BTC is valued at $3.87 billion.

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The company had used approximately $1.57 billion of the proceeds from its business to purchase BTC. The rest had been entirely financed by various types of loans, as indicated above. Nevertheless, the company has expressed its decision not to sell any of its BTC and plans to hold it for the long term. His holdings allow him to hold 0.615% of the total bitcoin supply in circulation.

MicroStrategy’s bitcoin game isn’t all rosy given that its bitcoin-backed loans carry the risk of a margin call that could reduce its position and the value of its holdings. However, if bitcoin were to stage another bull rally and reach $100,000, as many industry experts predict, the software company could quickly become one of the most valuable companies in the world.

Featured image from BitcoinSensus, chart from TradingView.com

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