As the bitcoin market faces turmoil surrounding Genesis Trading and the potential bankruptcy of Digital Currency Group (DCG), it continues to emerge that Michael Saylor and Microstrategy’s bitcoin bets are at risk if the price continues to slide. May have to
The elephant in the room is examined by Will Clemente of Reflexivity Research and Sam Martin of Blockworks Research. In their report, they examine questions such as whether MicroStrategy’s bitcoin has a liquidation value, how much it is worth, and how the company’s debt is structured.
MicroStrategy has the largest bitcoin holdings among exchange-listed companies, amounting to 130,000 BTC. In the past, the company has also taken out new loans to increase its bitcoin holdings.
Specifically, MicroStrategy borrowed $2.37 billion to buy its bitcoin at an average price of $30,000 per BTC. Saylor’s company debt profile can be seen in the table below.
Is MicroStrategy and Saylor’s Leveraged Bitcoin Bet at Risk?
According to the research report, the convertible notes resulted in minimal interest costs for MicroStrategy, as the notes were issued at very favorable MSTR conversion rates.
In addition, the conversion to stock cannot occur until June 15, 2025 and August 15, 2026 at the earliest, unless the company undergoes a “fundamental change.”
This is the case with a NASDAQ or NYSE delisting, a merger or acquisition of MicroStrategy, or a change in majority ownership of the company, according to Reflexivity Research.
Since Michael Saylor owns 67.7% of the voting rights, the latter scenario is very unlikely, making the convertible note not a major risk.
On the other hand, the 2028 senior secured notes are bad for a number of reasons, according to the report. They include a high fixed interest rate, tie up 11.5% of BTC holdings, and may cause problems when the maturity date is triggered.
“However, this poses no immediate threat to MicroStrategy,” Blockworks Research said.
For Silvergate’s $205 million secured loan due in 2025, with approximately 85,000 liquid BTC, Saylor’s liquidation price for that loan has reached a bitcoin spot price of $3,561. Thus, it also does not pose an immediate risk. Reflexivity research says:
While the above risks for MicroStrategy and its BTC reserves are relatively far from becoming an immediate concern, the bigger worry lies in the company’s ability to service the interest on its outstanding debt.
Operating results of MicroStrategy’s software business reflect a significant decline in profitability, and a potential recession could further impact operating results.
In its latest 10-Q report, the company itself warns that it may face operating losses in future periods. At the same time, Saylor’s company has about $67 million in liquid assets, which will serve as a buffer over the next 6-12 months.
In addition, the company has nearly 85,000 liquid BTC on its balance sheet, which provides collateral for bitcoin to fall below $13.5,000 and pushes the debt-to-value ratio of Silvergate loans above 50%.
“However, the software business needs to rally to avoid a BTC forced selloff in 2024,” Blockworks Research concluded. For now, though, MicroStrategy’s bitcoin bet isn’t anything investors should be worried about.
At press time, BTC price was once again rejected by the key $16.600 resistance.