Microstrategy Adds 6,455 Bitcoin to Reserve, Settles $205 Million Loan With Silvergate
Business intelligence firm and one of the largest corporate holders of Bitcoin, Microstrategy, has accumulated 6,455 more BTC worth $150 million, according to the company’s latest 8-K financial filing with the U.S. Securities and Exchange Commission (SEC).
Microstrategy Acquires 6,455 BTC Worth $150 Million
Michael Saylor, the Chairman of Microstrategy, went on Twitter to announce the purchase. The Nasdaq-listed company acquired the asset for approximately $150 million with an average price of $23,238 per Bitcoin between February 16 and March 23, 2023.
This brings the total amount of Bitcoins held by Microstrategy and its subsidiaries to 138,955 BTC, collectively worth $4.14 billion, bought at an aggregate price of $29,817 apiece.
The SEC filing further indicated that the software firm has paid off its loan to the failed Silvergate Bank. Last March, Microstrategy’s wholly owned subsidiary, Macrostartegy, entered into a Credit and Security Agreement with the crypto-focused bank for a $205 million loan.
A security agreement is a document that provides a lender security interest in a specific asset or property that is pledged as collateral when taking out a loan. A credit agreement is a legally-binding contract documenting the terms of a loan agreement between the party borrowing money and a lender.
The loan taken out by Macrostrategy was collateralized by 34,619 BTC held by the subsidiary and a $5 million cash reserve deposited in an account at Silvergate, noted the company in its 8-K filing.
Silvergate Bank was one among the three U.S. banks that collapsed earlier this month. The crypto-friendly bank faced a liquidity crisis after it had to sell off its assets at a loss of over $1 billion to continue operations and facilitate customer withdrawals. The bank operated a crypto-to-fiat exchange network called the Silvergate Exchange Network (SEN), which facilitated crypto payments for a host of companies in the space, including exchanges like Coinbase, Kraken, and Binance.
These companies also held accounts with the bank where they stored customers’ fiat deposits. However, Silvergate fell into trouble after it was revealed that collapsed crypto exchange FTX and its sister firm and market maker Alameda Research used SEN to funnel customer funds as part of a Ponzi scheme that turned out to be one of the largest in American history.
FTX managed all transactions on its platform via Alameda, which had an account with the troubled bank.
This resulted in depositors causing a run on the bank and withdrawing $8 billion in cash hours after the collapse of FTX. Silvergate, which had assets worth over $11 billion and $6.3 billion in deposits, failed to raise capital to stay afloat.
To continue operations, the bank had to resort to selling off its investments in government bonds and mortgage-backed securities at a loss.
The Federal Reserve’s rate hikes on the dollar to fight off inflation added more pressure on the bank to liquidate its assets as the returns on its investments reduced significantly.
Microstrategy Pays Off Bitcoin-Collateralized Loan at Silvergate Bank Before Maturity
On March 8, Silvergate Bank announced that it was winding down operations and preparing to liquidate company assets to pay off creditors and make depositors whole. Four days before the announcement, Silvergate discontinued the SEN payment platform.
After the bank went bust, Microstrategy assured investors that Silvergate was not the custodian of its Bitcoin reserves and that the company had no other obligations to the bank apart from a loan by its subsidiary.
Two weeks later, Macrostrategy paid off the loan at a 21.46% discount under the Prepayment, Waiver, and Payoff to Credit and Security Agreement between both companies, two years ahead of the loan’s maturity date on March 23, 2025.
Macrostrategy voluntarily prepaid Silvergate the ‘Payoff Amount’ of $161 million “in full prepayment, satisfaction, and discharge of the loan and all other obligations under the Credit Agreement”, read the SEC filing.
Microstrategy said that upon receiving the payoff amount, Silvergate terminated the Credit Agreement and released security interest in the Bitcoin that served as collateral for its subsidiary’s loan.
Microstrategy and its subsidiaries celebrated the favourable loan repayment deal by purchasing another 6,455 BTC for $150 million in cash to add to its evergrowing Bitcoin reserve.
At the time of writing, BTC is trading at $27,156 – down over 2% in the last 24 hours. The world’s most valuable cryptocurrency dropped from its nine-month high of $28,800, achieved at the height of the banking crisis, right after the Fed’s latest rate hikes.
