Brokerage firm Bernstein has recently shed light on the precarious financial balancing act of MicroStrategy (MSTR), with the tech giant’s strategy of bolstering its coffers through long-term debt potentially prompting the liquidation of its BTC reserves, but only if the cryptocurrency experiences a significant prices drop.
Bernstein’s report details that these extreme price corrections could see MSTR liquidate BTC holdings around its debt expiry, which is due in mid-2025, if a strong cryptocurrency price correction were to occur around that time.
Per the firm a surge in BTC’s value contributes to a sturdier balance sheet for MicroStrategy, resulting in increased share prices and an eased debt repayment process that doesn’t necessitate the selling off of the company’s Bitcoin assets.
Furthermore, this favorable financial climate enables MicroStrategy to secure new debt or equity, as well as redeem existing convertible notes, the report adds, noting that price slides offer a less favorable scenario.
Per the report, a significant plummet in Bitcoin’s value, pushing it to what Bernstein termed “absolute depressed prices”, would trigger an economic domino Effect. If the value of MicroStrategy’s BTC reserves were to fall short of covering its debt and specific covenants beyond June 2025, the firm’s corporate structure could be strained under “spring forward” clauses.
Analysts led by Gautam Chhugani, as CoinDesk reports, wrote:
Given bitcoin’s volatility, using debt as a strategy is always precarious, and one-off forced liquidations can never be ruled out completely.
MicroStrategy currently holds 152,333 BTC worth over $4.6 billion after acquiring an additional 12,333 BTC for $347 million late last month, in a transactions that underscored the company’s ongoing commitment to the cryptocurrency. The average purchase price of these Bitcoins was approximately $29,668 each.
The market value of the company’s Bitcoin assets comprises nearly 0.78% of the total Bitcoin in circulation and accounts for around 20% of the daily average BTC trading volume.
These Bitcoin assets form a staggering 95% of MicroStrategy’s market capitalization, and after factoring in the debt incurred to purchase BTC, they equate to around 49% of the company’s market cap.
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