Bernstein, a prominent brokerage firm, has shed light on the intricate financial balancing act undertaken by MicroStrategy (MSTR), the technology giant.
MicroStrategy’s strategy of bolstering its financial resources through long-term debt puts the company in a precarious position, as it may be forced to liquidate its significant Bitcoin (BTC) reserves if the cryptocurrency experiences a substantial price drop. This revelation is outlined in a recent report by Bernstein.
According to the report, if a strong correction in cryptocurrency prices were to occur around mid-2025, when MicroStrategy’s debt is due, the company might be compelled to sell off its BTC holdings to meet its debt obligations. On the other hand, a surge in the value of BTC contributes to a more stable balance sheet for MicroStrategy, resulting in increased share prices and a smoother debt repayment process without the need to sell off Bitcoin assets.
Furthermore, the favorable financial climate created by a rise in BTC prices enables MicroStrategy to secure new debt or equity and redeem existing convertible notes. However, the report cautions that price declines present a less favorable scenario.
According to Bernstein, a significant drop in Bitcoin’s value, reaching what the firm terms “absolute depressed prices,” would trigger a cascading effect on MicroStrategy’s financial situation. If the value of MicroStrategy’s BTC reserves falls short of covering its debt and specific covenants beyond June 2025, the company’s corporate structure could be strained under “spring forward” clauses.
CoinDesk reports that analysts, led by Gautam Chhugani, wrote:
“Given Bitcoin’s volatility, using debt as a strategy is always precarious, and one-off forced liquidations can never be ruled out completely.”
As of now, MicroStrategy holds 152,333 BTC, which is valued at over $4.6 billion. The company recently acquired an additional 12,333 BTC for $347 million, emphasizing its ongoing commitment to the cryptocurrency. The average purchase price of these Bitcoins was approximately $29,668 each.
MicroStrategy’s Bitcoin assets currently make up nearly 0.78% of the total Bitcoin in circulation and account for approximately 20% of the daily average BTC trading volume. These assets represent a staggering 95% of MicroStrategy’s market capitalization and, when factoring in the debt incurred to purchase BTC, they amount to around 49% of the company’s market cap.