Tysons business intelligence firm MicroStrategy Inc. (NASDAQ: MSTR) said it is under no pressure to pay off a loan it took out to fund bitcoin purchases before it’s due — even though the lender, Silvergate Bank in San Diego, has warned it could soon fail.
Silvergate, a unit of Silvergate Capital Corp. (NYSE: SI) that largely focuses on serving the cryptocurrency industry, has been reeling in recent months following the collapse of crypto exchange FTX and warned investors last week that it may not be able to continue as a going concern. In response, some crypto companies such as Coinbase Global Inc. and Galaxy Digital quickly ended their partnerships with $11.4 billion-asset bank.
MicroStrategy said in a Twitter post Thursday that the $205 million loan it took out with Silvergate in March 2022 using its own bitcoin holdings as collateral is not due until the first quarter of 2025, and that timeline wouldn’t change even in the event of Silvergate’s “insolvency or bankruptcy.”
It also said it has has “no other financial relationship” with the bank.
MicroStrategy said when it took out the loan that the proceeds would be used in part to buy bitcoin and for expenses related to those purchases.
Silvergate had $1.4 billion in total loans as of Sept. 30, down 14.5% from a year earlier, according to its third-quarter earnings report. The company has not yet filed its fourth-quarter and full-year earnings, citing “the business and regulatory challenges it currently faces.” Its shares, which peaked at $221 each in late 2021, are now trading at less than $6.
On Friday afternoon, Silvergate it said it was shutting down its payment network, a core offering that allowed clients to move money in and out of cryptocurrency exchanges 24 hours a day and in “near real-time,” according to its website
We’ve reached out to MicroStrategy and Silvergate for more information and will update this story with any responses.
Founded in 1989, MicroStrategy provides software to businesses to help them gather data and intelligence. In August of 2020, it began buying up bitcoin in large quantities, funding the purchases largely with stock sales and with the loan from Silvergate, which it took on under subsidiary MacroStrategy.
When the loan was announced, then-CEO Michael Saylor said in a statement that the transaction “gives us an opportunity to further our position as the leading public company investor in bitcoin.” The additional capital, he said, would help MicroStrategy transform some its bitcoin holdings “into productive collateral, which allows us to further execute against our business strategy.”
The loan was collateralized by bitcoin with a value of $820 million, according to documents filed with the Securities and Exchange Commission at the time. As the price of bitcoin fell sharply in 2022, there were concerns that MicroStrategy would face a “margin call,” which would have required it to put aside more bitcoin in its collateral account or sell off some bitcoin holdings to pay off the loan. Bitcoin’s price has fallen 41% over the past year to $22,529.30 as of Monday afternoon.
As of last month, MicroStrategy held 132,500 bitcoins purchased at an aggregate price of approximately $4.03 billion, or an average of $30,397 per bitcoin, including fees and expenses. Impairment charges related to its bitcoin holdings drove its total net loss year-over-year to $1.5 billion in 2022 — its highest loss since at least the turn of the millennium. Total revenue for 2022 was $499.3 million, a 2.3% drop from full-year 2021.