In the event of a significant drop in price, MicroStrategy (MSTR) may be required to liquidate its bitcoin (BTC) reserves to pay back its long-term debt, Bernstein stated in a Tuesday report. This debt is anticipated to expire in the middle of 2025.
The report suggested that a rise in the value of bitcoin would lead to an improved financial position for MicroStrategy, including a higher stock price and more manageable debt repayment without the need to liquidate its cryptocurrency. Furthermore, its share price and the strength of bitcoin could facilitate the issuance of new debt or equity and redemption of existing convertible notes, the broker noted.
On the other hand, in the event of a bitcoin crash and the consequent low prices, the value of MicroStrategy’s cryptocurrency assets may not be enough to meet the debt and certain conditions beyond June 2025, which could result in the firm’s structure coming under pressure due to “spring forward” clauses. The report further noted that some of the debt due in 2028 may have liquidity covenants that can be moved forward to 2025/26.
The team of analysts directed by Gautam Chhugani asserted that due to the unpredictability of bitcoin, any approach of leveraging debt is always a risky one, and the possibility of singular, spontaneous liquidations cannot be completely disregarded.
MicroStrategy has a portfolio of approximately 152,000 bitcoin, amounting to an expenditure of $4.5 billion with a unit price of approximately $29,600, according to the note. Its cryptocurrency holdings make up 0.78% of the total bitcoin in circulation and account for 20% of the daily average BTC trading volume, the analysts stated.
MicroStrategy’s market cap is approximately 49% of their market capitalization, net of debt raised to acquire Bitcoin, with the market value of Bitcoin assets making up 95% of the total, according to the report.
On Monday, Berenberg, an investment bank, reported that should MicroStrategy’s stock price and the worth of its bitcoin assets rise significantly, it would be able to restructure its debt obligations more easily.
Berenberg Bank believes that MicroStrategy, led by Michael Saylor, has potential to experience great gains due to Bitcoin’s upcoming halving.
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