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Bitcoin Margin Calls, Waterfall Events, and People Pretending to Know the Unknowable

Bitcoin has its shares of believers and disbelievers. Both groups pretend to know what they cannot possibly know.
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Bitcoin chart courtesy of StockCharts.Com annotations by Mish

Bitcoin chart courtesy of StockCharts.Com annotations by Mish

In speculative mania land, Michael Saylor, CEO of MicroStrategy, borrowed money to buy Bitcoin. 

There is a margin call if Bitcoin tumbles to $21,000.

Yesterday, I asked How Many Days Before Bitcoin Hits Margin Call Price of $21,000?

Bitcoin Poll Results, 21,000

I was curious what people actually thought.

This triggered a Tweet storm.

Margin Debate


MicroStrategy was asked during the earnings 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 at50% loan-to-value. So essentially, bitcoin needs to cut in half or around $21,000 before we'd have a margin call," MicroStrategy CFO Phong Le replied.

I said margin call. Nothing more nothing less. And it can easily cascade, easily. 

A Cascade?

Calculated Calm Requested

Definition of Can

I said "can" not will. I don't know, nor does anyone else. 

People pretend to know, on both sides. 

I appreciate the compliment from Chal Tim: "Mish you are great and I will continue to read your blogs because you are a source of alpha but this scenario will not happen." 

But neither Chal (an extreme bull) nor CryptoWhale (an extreme bear) knows where Bitcoin is headed. 

Extreme Confidence in Both Directions!

CryptoWhale says "#Bitcoin will hit $10,000 this year. I'm so confident in my prediction that If I'm wrong, I will give $1000 in $BTC to anyone who retweets this post."

Needless to say, I got no reply asking for a contract.

Sensible Comment on Margin

"A lot commentary on FinTwit on levels which trigger a margin call. Margin level requirements constantly move and are contingent on the capricious whims of the margin clerk. If they’re scared, Fugedaboutit!"

In addition to the excellent comment by Norinsberg, note that he made no predictions about what will or will not happen.

Impossible to Know the Unknowable

People are so wrapped up in what they think they know, that you get attacked simply for discussing the matter. 

MicroStrategy CFO Phong Le said there's a margin call at $21,000. I assume that is the approximate level. 

Yep, I fully understand that Saylor is willing to ride his conviction and blow up MicroStrategy. 

He did it once before!

MSTR 1999-2003

MSTR from 1999 to 2003 chart courtesy of StockCharts, annotations by Mish

MSTR from 1999 to 2003 chart courtesy of StockCharts, annotations by Mish

Scroll to Continue


Does anyone recall MSTR in the dotcom bubble years? 

Flashback March 21, 2000: MicroStrategy Stock Plunges 62%

MicroStrategy Inc.'s share price plummeted 62 percent yesterday after the Vienna-based software company announced that its 1999 revenue was much less than it originally reported and that the year's profit was actually a loss.

Stunned investors slashed $11.1 billion from the highflying technology company's market value--and $6.1 billion from the personal fortune of Michael J. Saylor, the founder and chief executive.

Bonus Flashback: MicroStrategy Chairman Accused of Fraud by S.E.C.

Mr. Saylor settled the civil charges that were filed in federal court in Washington without admitting or denying them and agreed to pay $8.3 million to shareholders and a $350,000 penalty to the S.E.C.

The S.E.C. contended that Mr. Saylor and two other MicroStrategy officials, who each agreed to pay $350,000 in penalties and to pay a total of $1.7 million to shareholders, had committed fraud in reporting profits when the company was actually losing money.

Mr. Saylor and the two other officials, Sanjeev K. Bansal, the chief operating officer, and Mark Lynch, a former chief financial officer who is still with the company, also consented to injunctions barring them from violating securities laws.

Saylor made billions of dollars and got of with a mere $8.3 million to shareholders and a $350,000 to the SEC, without having to admit guilt. 

I don't know if he was guilty of fraud, but I do know that MSTR had to restate earnings into a loss. 

I also know he is has turned MSTR into a leveraged speculative play on Bitcoin, betting the entire company in the process.

Saylor a Genius?

For all the people who think Saylor is a genius, please note he did not make the current bet at $500, $1000, or even $5000 but near $30,000. 

And that bet is smack in the face of the Fed hiking and pulling liquidity in what should easily be seen as the biggest speculative mania ever.

Yet, people have faith in what he says about margin calls and where Bitcoin is headed despite the fact he ran MSTR into the ground once before.

Still others, both bears and bulls, pretend they "know" where Bitcoin is headed. 

What a hoot!

Final Word on How Cascades Happen

  1. Margin call, more Bitcoin pledged, more margin calls, more pledged. 
  2. Those who got in at $25,000 and do not want to turn a huge profit into a loss sell.
  3. That happens again at $20,000, and again at $18,000. Then some whales might get panicky. 
  4. And then and then?

Musical Tribute

Yet, someone tells me everything is OK because of orderbooks. Yeah right. 

Can order buy books be fake? Can legitimate orders be pulled? Are the margin calls where people think they are? Most importantly, what about all of the people who see Bitcoin plunge and then react on the spot?

Putting stop losses where market makers can see them isn't exactly brilliant. 

Finally, bear in mind that Bitcoin futures = paper Bitcoin but margin calls are very real.

Words of advice: People panic. The Fed is not Jones. Orderbooks might not be what they seem. Jones may not come by this time. And if he does, perhaps his hat is black. 

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This post originated at MishTalk.Com.

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