MSTR Plummets 55%; MicroStrategy’s $43.7B Bitcoin at Risk of Being Sold?

MicroStrategy’s stock has dropped more than 55% since the start of the year. This has sparked concerns about whether the company might have to sell off its large Bitcoin holdings to stay afloat.

The firm holds around 499,096 BTC, valued at $43.7 billion, with an average Bitcoin purchase price of $66,350. If Bitcoin’s price drops below that average, MicroStrategy could be forced to sell some of its Bitcoin to cover its debt. 

Liquidation Hinges On 2 Factors

However, an analysis from The Kobeissi Letter suggests this is unlikely to happen. MicroStrategy’s strategy involves borrowing money with low-interest notes, buying Bitcoin to push its price up, selling shares, and then buying more Bitcoin. Even with Bitcoin recently dropping to $86,008, the company’s strategy helps reduce the risk of a big sell-off.

The Kobeissi Letter suggests that the risk of forced liquidation depends mainly on two factors: a prolonged and steep decline in Bitcoin’s price, and MicroStrategy’s ability to secure additional capital.

According to The Kobeissi Letter, MicroStrategy would need Bitcoin to drop below $66,000 and stay there to be forced to sell its holdings. Despite several Bitcoin price crashes since August 2020, the company has never sold its Bitcoin and has managed to stay stable.

Saylor’s Commitment To Buy Bitcoin; But Challenges Ahead?

Michael Saylor downplays the risk of liquidation, saying, “Even if Bitcoin hits $1, we’d just buy more.” However, analysts warn that a forced sale could happen if there’s a major change in the company, like a stockholder vote or bankruptcy, pushing MicroStrategy to sell its Bitcoin.

The company holds $8.2 billion in debt backed by $43.4 billion in Bitcoin. Most of its convertible notes are due by 2027, giving the firm time to wait for the price to recover from any declines, protecting it from short-term risks.

Despite Saylor’s confidence, the real challenge looms in 2027 when MicroStrategy’s convertible notes mature. Goldman Sachs analysts warn that if Bitcoin falls by 50% and stays low, creditors may refuse to renew the debt, triggering a liquidity crisis.

Bitcoin’s Recent Decline

Bitcoin’s price has recently fallen below $90,000, marking a significant decline from its peak of $109,000. Besides, Geoff Kendrick from Standard Chartered has forecasted a potential 10% drop, linking it to outflows from U.S. Bitcoin spot ETFs. While analysts like BitMEX co-founder Arthur Hayes also predict more price drops, the overall outlook for Bitcoin remains positive.