MicroStrategy currently holds over 250,000 BTC worth nearly $10 billion, making it one of the largest Bitcoin holders globally. The company’s BTC acquisition strategy has raised questions about its financial stability, especially considering the potential risks associated with its debt and future Bitcoin price movements. Also, netizens are speculating on whether the Michael Saylor-backed company will sell its BTC reserve.
MicroStrategy to Sell Its Bitcoin?
According to a report by BitMEX Research, MicroStrategy’s stock trades at a significant premium to its net asset value (NAV). This situation is similar to how Grayscale Bitcoin Trust (GBTC) did in previous Bitcoin cycles before it converted to an ETF.
Moreover, the company’s debt situation is complex. MicroStrategy has issued five outstanding bonds totaling $4.25 billion since adopting its Bitcoin strategy. These bonds come with various redemption and conversion options, which play a crucial role in determining whether the company might need to sell its BTC holdings.
BitMEX Research noted that four of the five bonds allow bondholders to convert their bonds into MSTR stock at specific conversion ratios or demand cash based on the amount borrowed plus any unpaid interest. MicroStrategy also retains the right to redeem bonds for cash if the stock price exceeds certain thresholds.
MicroStrategy Bonds – When Liquidation?
We look at MSTR’s outstanding bonds & look at their structure. We assess the possibility MSTR could be forced to sell Bitcoin. We argue that forced liquidations are unlikely, based on the current debt structurehttps://t.co/mQK4ODuUlM
— BitMEX Research (@BitMEXResearch) October 24, 2024
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For instance, the zero-coupon bond, maturing in 2027, gives MicroStrategy the right to redeem for cash if its stock trades above a 30% premium to the conversion price. While the current stock price is $214, well above the required $186.23 threshold, the company has yet to exercise this option because the stock has not traded above the threshold for the required 20 days.
Despite the concerns over potential forced liquidation, BitMEX Research suggests that the likelihood of MicroStrategy being forced to sell its Bitcoin to meet bond obligations is low. The company’s interest payments on its bonds are relatively small, and its legacy software business is expected to generate enough free cash flow to cover these costs. A significant Bitcoin price crash, while problematic, may not directly force the company into selling its BTC.
BitMEX Flags Major Caution
However, the research highlights that if the Bitcoin price were to drop substantially, perhaps to around $15,000 per BTC, things could worsen. In such a situation if MicroStrategy could not raise additional debt, forced liquidation of its BTC could become a consideration. Nonetheless, it is important to note that the maturity dates of its bonds are spread between 2027 and 2031, which provides the company with some flexibility.
The report also notes that while MicroStrategy is unlikely to be forced into selling its Bitcoin, it could become advantageous for shareholders to sell if the stock’s premium to NAV turns into a discount. The company’s ability to issue debt while its stock trades at a premium is referred to as an “infinite money glitch,” but this situation may not last indefinitely.
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Also Read: US Bitcoin ETF Reserve Nears 1M BTC, Price Rally Imminent?
