MicroStrategy Subsidiary Obtains Bitcoin-Collateralized Loan From Silvergate

Silvergate Bank is in the news for issuing a sizeable loan collateralized with bitcoin.  The loan has been extended to a subsidiary of MicroStrategy referred to as Macrostrategy.  The loan amounts to more than $200 million.  The expectation is that the money will be used to buy bitcoins and also to finance corporate activities moving forward. 

Loan Details Of Note 

The bitcoin-collateralized loan was provided through a financial program dubbed “Silvergate Exchange Network Leverage”, which amounted to nearly $600 million of aggregate commitments at the end of the year gone by.  MicroStrategy has noted it is holding in excess of 125,000 bitcoins that were obtained for just under $4 billion.

The loan provided by Silvergate Bank is interest-only term and fully secured by bitcoin.  The loan will be held within a collateral account of MacroStrategy.  Alan Lane, the Chief Executive Officer of Silvergate, noted that MicroStrategy’s nuanced treasury management approach exemplifies the manner in which institutions use support for bitcoin to expand business operations.  However, when pressed for additional comment on the transaction, Silvergate representatives refused to provide more information.

MicroStrategy’s Bitcoin Purchase Details

MicroStrategy purchased in excess of 10,000 bitcoins in the final financial quarter of 2021 alone.  The average price of each bitcoin was slightly more than $57,000.  The bitcoin haul was made after raising capital through the company’s equity offering at-the-market.  The company then proceeded to buy 660 additional bitcoins between the last day of December and the final day of January, 2022.  This enormous bitcoin purchase amounted to more than $25 million in cash, ultimately equating to just under $38,000 of bitcoin.  

All in all, the bitcoin haul brought the firm’s aggregate bitcoin holdings to more than 125,000.  It cost MicroStrategy nearly $4 billion to amass this enormous amount of crypto.  At the moment, the company’s bitcoin holdings are larger than those of all but two other publicly traded companies.  Those interested in cryptocurrency investing should be aware that MicroStrategy trades on the Nasdaq under the symbol of MSTR.

The Head of MicroStrategy Speaks Out

It is interesting to note around 110,000 of MicroStrategy’s bitcoins are not pledged in the form of collateral, meaning they have the potential to be used to obtain leverage or yield.  This distinction was recently noted by Michael Saylor, the Chief Executive Officer of MicroStrategy, during a February earnings call.

Saylor also noted that the company intends to use free cash flow to obtain additional bitcoins.  Saylor also noted he will analyze opportunities to raise even more capital as a means of obtaining additional crypto as time progresses.  Saylor stated the SEN Leverage loan provides an opportunity to bolster its position as the top publicly owned company with a bitcoin stake. 

Saylor also went on to note that the capital obtained from the loan will transform its bitcoin into a form of collateral with utility, ultimately empowering the company to fulfill its overarching mission.  

It appears as though Saylor timed the deal just right as Bitcoin has been on the upswing of late.  The cryptocurrency is up more than 16% in the past week alone.

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