MicroStrategy falls 24% as bitcoin inches closer to its margin call level of $21,000

• MicroStrategy stock fell 24% to its lowest level since 2020 as bitcoin's bear market continues.
• Bitcoin has fallen 18% over the past week to below $33,000, inching closer to MicroStrategy's margin call levels.
• MicroStrategy could be forced to sell some of its bitcoin if the crypto drops below $21,000.

MicroStrategy fell 24% on Monday to its lowest level since 2020 as the stock price continues to closely track the price of bitcoin and gets closer to its margin call level.

Bitcoin has dropped more than 20% over the past week, dipping below $31,000, after it was rejected at a key resistance level of $40,000. That's bad news for MicroStrategy, as it has taken out billions of dollars in debt to buy more than 129,000 bitcoin over the past two years.

And MicroStrategy's underlying software business is not profitable enough to service that debt, so the success of the company's highly leveraged bet on crypto is solely dependent on the price of bitcoin rising well above its average price paid of $30,700.

If bitcoin falls below $21,000, MicroStrategy will be met with a margin call from one of its loans. That would force the company to either put up more collateral to the loan or sell some of its bitcoin holdings, according to comments from MicroStrategy CFO Phone Le on the company's most recent earnings call.

MicroStrategy was asked during the call, "how far does bitcoin have to fall for MicroStrategy to receive a margin call on the Silvergate loan?"

"As far as where bitcoin needs to fall, we took out the loan at a 25% loan-to-value, the margin call occurs [at] 50% loan-to-value. So essentially, bitcoin needs to cut in half or around $21,000 before we'd have a margin call," Le answered. Bitcoin would need to fall 36% from current levels to hit $21,000.

In March, MicroStrategy took out a $205 million bitcoin-collateralized loan with Silvergate Bank to purchase more bitcoin. The software company's total bitcoin holdings are now worth just over $4 billion. Earlier this year, CEO Michael Saylor said he doesn't plan to ever sell MicroStrategy's bitcoin stash.

But MicroStrategy is trading at a market valuation of just over $3 billion, meaning the stock is trading at a discount to its underlying crypto holdings. That signals investors may be somewhat uneasy with its billions of dollars in debt, its slowly declining software business, and its exposure to a extremely volatile asset.