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MicroStrategy margin call? BTC losses grow as MSTR board faces potential investor class action

By Kevin Donovan

15:47, 8 July 2022

Bitcoin 2022 Conference at Miami Beach Convention Center on April 7, 2022
MicroStrategy under potential legal scrutiny over Bitcoin purchases - Photo: Getty Images

Despite plunging Bitcoin (BTC) prices, which forced MicroStrategy (MSTR) to re-collateralise a loan last month in order to avoid a margin call, MicroStrategy stock has rebounded by over 50% since hitting a 52-week low share price on 13 June. Now, the business software company that is also the largest corporate Bitcoin holder faces a potential shareholder class action lawsuit alleging a breach of fiduciary duties.

MSTR CEO Saylor reports additional Bitcoin purchaseMSTR CEO Saylor reports additional Bitcoin purchase - Photo: Twitter

“Our investigation concerns whether the Company’s board of directors breached its fiduciary duties to shareholders and/or grossly mismanaged the Company,” said the law office of Frank Cruz in a statement. The potential lawsuit is seeking current MicroStrategy shareholders who purchased stock prior to the June 2000 board authorization for MicroStrategy to adopt its current Bitcoin treasury management strategy.

Despite concerns MicroStrategy would have to liquidate some of its Bitcoin holdings to cover a potential margin call from lender Silvergate Bank sent shares to a $152.19 52-week low last month, MicroStrategy stock has steadily gained, hitting a $233.50 intra-day high Friday, a 53.4% gain in under one month. MicroStrategy stock trades on the Nasdaq exchange under the ticker MSTR.

MicroStrategy Inc. (MSTR) stock price

Due to its holding roughly 130,000 bitcoin after purchasing an additional 480 bitcoin for $10m (£8.30m) at a $20.817 average price, MicroStrategy stock largely tracks the world’s largest cryptocurrency. As a result, MicroStrategy stock is roughly 80% off its $891.38 52-week high set last November, as bitcoin hit its $68,789 all-time high around the same time.

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MSTR vs BTC June 2020-YTD

MSTR (blue) vs BTC (red) June 2020-YTDMSTR (blue) vs BTC (red) June 2020-YTD - Photo: TradingView

 

AAPL

168.48 Price
+0.130% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.15

AMD

155.05 Price
+0.620% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.29

TSLA

152.51 Price
-1.610% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.30

COIN

216.93 Price
+2.040% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 0.37

Frivolous lawsuit?

As with MicroStrategy stock, Bitcoin has rebounded since its $17,789 52-week low to just over $22,230 Friday, a 25.4% gain. MicroStrategy has spent just under $4bn on its Bitcoin holdings, at a roughly $30,000 average price per bitcoin, MicroStrategy CEO Michael Saylor reported on Twitter.

Specifics of the potential lawsuit, however, are scarce. “Class action micht be coming for [MicroStrategy] against board for allowing purchases of Bitcoin,” opined Twitter account This is Good for Theocrats. “Actually, from reading this, they’re pretty vague about the misconduct. Time to go fishing.”

 

Markets in this article

BTC/USD
Bitcoin / USD
62489.90 USD
1572.4 +2.580%
MSTR
MicroStrategy Incorporated
1189.50 USD
-67.53 -5.390%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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