Michael Saylor’s MicroStrategy Would Need to Liquidate Bitcoin (BTC) During Extreme Price Corrections: Bernstein

MicroStrategy’s (MSTR) plan to raise long-term debt puts pressure on the company to liquidate its Bitcoin (BTC) holdings, but only in the event of extreme price corrections, particularly in light of the debt expiry due in mid-2025, brokers said Bernstein in a report on Tuesday.

Higher bitcoin prices mean MicroStrategy has a stronger balance sheet, a higher share price, and easier debt repayment without having to sell its cryptocurrency holdings, the report said. Additionally, strong bitcoin prices and a higher share price allowed the company to raise new debt or equity and redeem existing convertible bonds, the broker said.

Conversely, if Bitcoin crashes and hits “absolutely low prices” and the value of MicroStrategy’s cryptocurrency holdings does not cover the debt and certain covenants after June 2025, “the corporate structure would come under pressure from ‘spring forward’ clauses – the debt due 2028 does.” “Liquidity arrangements that could bring debt forward to 2025/26,” the report added.

“Given Bitcoin’s volatility, the use of debt as a strategy is always precarious and one-off forced liquidations can never be completely ruled out,” wrote analysts led by Gautam Chhugani.

MicroStrategy holds around 152,000 bitcoin, with a total cost base of around $4.5 billion and an average price of around $29,600, the note said. The market value of MicroStrategy’s cryptocurrency assets accounts for about 0.78% of the total Bitcoin supply and accounts for about 20% of the daily average BTC trading volume, the analysts wrote.

The market value of Bitcoin assets accounts for 95% of MicroStrategy’s market cap, and minus the debt incurred to purchase BTC, equates to about 49% of the company’s market cap, the report added.

MicroStrategy’s ability to refinance the maturities of its debt would improve significantly if the share price and the value of its Bitcoin holdings rose significantly, investment bank Berenberg said in a report Monday.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers