MicroStrategycurrentlyholdsover250,000BTCworthnearly$10billion,makingitoneofthelargestBitcoinholdersglobally.Thecompany’sBTCacquisitionstrategyhasraisedquestionsaboutitsfinancialstability,especiallyconsideringthepotentialrisksassociatedwithitsdebtandfutureBitcoinpricemovements.Also,netizensarespeculatingonwhethertheMichaelSaylor-backedcompanywillsellitsBTCreserve.
MicroStrategytoSellItsBitcoin?
AccordingtoareportbyBitMEXResearch,MicroStrategy’sstocktradesatasignificantpremiumtoitsnetassetvalue(NAV).ThissituationissimilartohowGrayscaleBitcoinTrust(GBTC)didinpreviousBitcoincyclesbeforeitconvertedtoanETF.
Moreover,thecompany’sdebtsituationiscomplex.MicroStrategyhasissuedfiveoutstandingbondstotaling$4.25billionsinceadoptingitsBitcoinstrategy.Thesebondscomewithvariousredemptionandconversionoptions,whichplayacrucialroleindeterminingwhetherthecompanymightneedtosellitsBTCholdings.
BitMEXResearchnotedthatfourofthefivebondsallowbondholderstoconverttheirbondsintoMSTRstockatspecificconversionratiosordemandcashbasedontheamountborrowedplusanyunpaidinterest.MicroStrategyalsoretainstherighttoredeembondsforcashifthestockpriceexceedscertainthresholds.
MicroStrategyBonds–WhenLiquidation?
WelookatMSTR’soutstandingbonds&lookattheirstructure.WeassessthepossibilityMSTRcouldbeforcedtosellBitcoin.Wearguethatforcedliquidationsareunlikely,basedonthecurrentdebtstructurehttps://t.co/mQK4ODuUlM
—BitMEXResearch(@BitMEXResearch)October24,2024
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Forinstance,thezero-couponbond,maturingin2027,givesMicroStrategytherighttoredeemforcashifitsstocktradesabovea30%premiumtotheconversionprice.Whilethecurrentstockpriceis$214,wellabovetherequired$186.23threshold,thecompanyhasyettoexercisethisoptionbecausethestockhasnottradedabovethethresholdfortherequired20days.
Despitetheconcernsoverpotentialforcedliquidation,BitMEXResearchsuggeststhatthelikelihoodofMicroStrategybeingforcedtosellitsBitcointomeetbondobligationsislow.Thecompany’sinterestpaymentsonitsbondsarerelativelysmall,anditslegacysoftwarebusinessisexpectedtogenerateenoughfreecashflowtocoverthesecosts.AsignificantBitcoinpricecrash,whileproblematic,maynotdirectlyforcethecompanyintosellingitsBTC.
BitMEXFlagsMajorCaution
However,theresearchhighlightsthatiftheBitcoinpriceweretodropsubstantially,perhapstoaround$15,000perBTC,thingscouldworsen.InsuchasituationifMicroStrategycouldnotraiseadditionaldebt,forcedliquidationofitsBTCcouldbecomeaconsideration.Nonetheless,itisimportanttonotethatthematuritydatesofitsbondsarespreadbetween2027and2031,whichprovidesthecompanywithsomeflexibility.
ThereportalsonotesthatwhileMicroStrategyisunlikelytobeforcedintosellingitsBitcoin,itcouldbecomeadvantageousforshareholderstosellifthestock’spremiumtoNAVturnsintoadiscount.Thecompany’sabilitytoissuedebtwhileitsstocktradesatapremiumisreferredtoasan“infinitemoneyglitch,”butthissituationmaynotlastindefinitely.
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AlsoRead:USBitcoinETFReserveNears1MBTC,PriceRallyImminent?
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