MSTR plummets 55%, Strategy's $43.7 billion worth of Bitcoin at risk of being sold?
Michael Saylor's company, Strategy, is going through a tough financial time. The company's stock has fallen more than 55% since the beginning of the year, raising concerns about whether the company will have to sell off its large Bitcoin holdings to stay afloat.
The company holds about 499,096 BTC, worth $43.7 billion, with an average Bitcoin purchase price of $66,350. If the price of Bitcoin falls below that average, MicroStrategy could be forced to sell some of its Bitcoin to cover its debt.
Liquidation depends on 2 factors
However, an analysis from The Kobeissi Letter suggests that this is unlikely. MicroStrategy's strategy involves borrowing money in low-yield bonds, buying Bitcoin to push up the price, selling the stock, and then buying more Bitcoin. Even though Bitcoin recently fell to $86,008, the company's strategy still reduces the risk of a major sell-off.
Kobeissi's letter argues that the risk of forced liquidation depends primarily on two factors: a sharp and sustained decline in the price of Bitcoin, and MicroStrategy's ability to secure additional capital.
According to The Kobeissi Letter, MicroStrategy would need Bitcoin to fall below $66,000 and stay there to be forced to sell its holdings. Despite the sharp drop in Bitcoin prices since August 2020, the company has never sold Bitcoin and has remained stable.
Saylor's Bitcoin Buying Commitment
Michael Saylor downplayed the risk of liquidation, saying, “Even if Bitcoin hits $1, we’ll still buy more.” However, analysts warned that forced selling could occur if a major change in the company, such as a shareholder vote or bankruptcy, prompts MicroStrategy to sell its Bitcoin.
The company holds $8.2 billion in debt backed by $43.4 billion in Bitcoin. Most of the company's convertible bonds mature in 2027, giving the company time to wait for prices to recover from any declines, insulating the company from short-term risks.
Despite Saylor’s confidence, the real challenge will come in 2027 when MicroStrategy’s convertible bonds mature. Goldman Sachs analysts warn that if Bitcoin falls 50% and stays low, creditors could refuse to renew the debt, triggering a liquidity crisis.
Bitcoin's Recent Decline
Bitcoin recently fell below $90,000, marking a significant drop from its peak of $109,000. Additionally, Geoff Kendrick of Standard Chartered has predicted a potential 10% drop, linking it to outflows from U.S. spot Bitcoin ETFs. While analysts like BitMEX co-founder Arthur Hayes also predict further price declines, the overall outlook for Bitcoin remains positive.