MicroStrategy plunges 29% after bitcoin meltdown pushes crypto market cap below $1 trillion

• MicroStrategy stock plunged 29% on Monday amid an ongoing meltdown in bitcoin and other cryptocurrencies.
• Bitcoin fell more than 12% to below $24,000 early Monday as investors assess the contagion risk of the Celsius Network freezing withdrawals.
• MicroStrategy took out billions of dollars of debt to buy bitcoin at higher prices and faces a margin call if the crypto falls to $21,000.

MicroStrategy stock fell as much as 29% on Monday amid an ongoing meltdown in cryptocurrencies that has erased hundreds of billions of dollars in market value.

Bitcoin fell more than 12% to below $24,000, and the total market value of cryptocurrencies fell below the $1 trillion level for the first time since February 2021. The weakness came as investors assess the contagion risk of the Celsius Network freezing withdrawals over the weekend. Many crypto investors uses Celsius for crypto staking and liquidity.

MicroStrategy is feeling the pressure on Monday because it took out billions of dollars of debt to purchase bitcoin at higher prices. MicroStrategy owns nearly 130,000 bitcoin on its balance sheet, having purchased them at an average price of $30,700 over the past two years.

And while MicroStrategy CEO Michael Saylor has repeatedly said he will never sell bitcoin, he may not have a choice if bitcoin keeps falling at the pace it has in recent days, as the company faces a margin call on its bitcoin-backed loan if the cryptocurrency falls to $21,000. That would force the company to either put up more collateral or sell some of its bitcoin.

That's according to comments from MicroStrategy CFO Phone Le on the company's first-quarter 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 just 13% 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 $3 billion.

But MicroStrategy is trading at a market valuation of just under $2 billion, meaning the stock is trading at a discount to its underlying crypto holdings. That signals investors are uneasy with its billions of dollars in debt, its slowly declining software business, and its exposure to an extremely volatile asset.

MicroStrategy hasn't been shy in buying more bitcoin amid broader crypto market declines. But that may not be an option anymore as it becomes stretched thin with leverage and as investor confidence in crypto deteriorates, making it harder for the company to raise more debt for the sole purpose of buying crypto.