MicroStrategy: Ignoring Margin Call Fears and the Michael Saylor Lawsuit (NASDAQ:MSTR)

MicroStrategy (NASDAQ: MSTR) is my favorite Bitcoin (BTC-USD) proxy stock that charges no annual fee unlike Grayscale Bitcoin Trust (OTC:GBTC).

I have long believed in Bitcoin and have decided to double my MSTR stake in my IRA as a store of long-term value.

There has been a lot of negative news in the media lately regarding MicroStrategy’s executive chairman, Michael Saylor.

Being born and raised in DC, I felt like this story was close to my heart since the District of Columbia sued Saylor for tax evasion.

There are also many rumors about a possible Bitcoin margin call if Bitcoin continues to decline. At the time of writing, BTC is trading around $19,000 and has broken above the $20,000 support.

If you’ve been following me for a while, you already know about the Bitcoin halving cycle and its impact on the crypto markets.

Bitcoin could easily have a much lower trend leading to block #770,000 where I predict the price will bottom out and start recovering ahead of the Bitcoin halving in 2024.

In this article, I want to address some of the things mentioned above and share exactly why I plan to buy HODL MSTR stock right now at these price levels.

MicroStrategy Business Update

MicroStrategy holds 129,699 BTC on its balance sheet and adopts a Bitcoin DCA strategy of buying Bitcoin on a consistent basis. The current value of MSTR’s bitcoin holdings is approximately $2.4 billion.

The company once again reported lackluster revenue and profit numbers that reflect slow growth in its enterprise software business. Q2 2022 revenue was $122 million and net loss was $908 million (mainly due to a Bitcoin impairment charge of $918 million).

Michael Saylor stepped down as CEO of MicroStrategy at the end of Q2 2022 to focus exclusively on Bitcoin as the company’s new executive chairman. He quickly announcement a new enterprise flash wallet to boost enterprise adoption of Bitcoin. It’s a good sign and it looks like Saylor made a smart move by handing over the company to new CEO Phong Le.

Some of you may be wondering why one should buy MSTR stock instead of BTC in the first place.

You can buy Bitcoin yourself, but there are additional risks to holding your own BTC.

First of all, your crypto wallet can be hacked or someone scams you with your coins. If you choose an offline hardware wallet, you risk forgetting your private keys and losing access to your Bitcoin.

I think Bitcoin is a digital revolution that will be embraced by younger generations in the future. I don’t expect baby boomers to bother building a crypto portfolio and risking their retirement in a whole new digital asset class.

But anyone can buy MSTR shares and gain exposure to bitcoin without needing to buy bitcoin directly. Hope this explains the benefits of buying MSTR stock.

Ignore FUD Margin Call

Next, let’s talk about the rumors surrounding MicroStrategy and a possible margin call. MicroStrategy has little to no chance of defaulting on its SilverGate loan unless BTC drops to around $3,000 per coin.

In the Transcript of second quarter 2022 resultsMicroStrategy CFO Andrew Kang explained how the SilverGate loan works and what would happen if the price of Bitcoin continues to fall.

The company has pledged 30,000 BTC as collateral for the loan and still has 85,000 unpledged coins that can be used.

The $205 million loan requires an LTV ratio of 50% ($410 million) or less so that MicroStrategy can pledge more BTC if prices drop even further. As the price of BTC declines, the value will decline so the company can mine its 85,000 uncommitted coins to maintain a strong LTV.

Michael Saylor tweeted that BTC needs to crash to $3,562 for the company to get margin called.

This is a far cry from BTC’s current price of $19,000. It’s unlikely but I wouldn’t worry at the moment as we are a few months away from the crypto market bottom.

DC lawsuit doesn’t change Saylor’s long-term views on Bitcoin

The DC Attorney General accused Saylor to avoid $25 million in DC taxes by residing in Washington, DC while pretending to live in Florida.

I’m not sure exactly where Saylor resides, as he’s been known to move around frequently as a leading Bitcoin supporter. He owns property in multiple states and likely chose Miami because of Florida’s zero income tax.

Either way, the lawsuit makes noise and does not affect MicroStrategy’s Bitcoin reserve in any way.

Saylor is a billionaire and has a personal stash of 17,732 BTC worth approximately $333 million at current market values. I guess he will fight this lawsuit and get it under control.

MicroStrategy has no problem, so just ignore any FUD you read on forums such as Reddit.

Risk factors

To bet on Saylor and his company is to take a lot of risks. Owning MSTR shares is not for the faint of heart, as Bitcoin is still in its infancy.

There are several risk factors including:

• Bitcoin is replaced by a new crypto coin and loses market dominance.
• Saylor changes his mind and decides to sell MicroStrategy’s Bitcoin reserve. I believe most investors would run for the exits because the company’s core enterprise software business doesn’t do much in terms of hypergrowth.
• The SEC approves a bitcoin spot ETF such as GBTC and investors are selling MSTR to buy a safer bitcoin proxy.
• Short sellers continue to bet against MSTR stock and send it lower. MSTR has a current short interest of 32% according to Fintel.

MSTR is probably the riskiest stock I own, but it also has the biggest upside. There are only 9.3 million shares outstanding and the shorts are dragging MSTR shares down right now.

However, I think we will see a major reversal around January 2023 when Bitcoin hits block #770,000.

According BTC.comwe are currently at block #753,280.

Conclusion

I am long MSTR and will continue to hold my shares for now. If MSTR drops below $200, I will consider adding closer to the $150 level.

This is a long term hold for me and I also believe in owning BTC.

Until 2023 I will ignore noise and HODL.