Last Tuesday, broker Bernstein highlighted the potential of MicroStrategy’s long-term debt-raising plan to put its bitcoin holdings under considerable pressure, though only in dire circumstances of extreme price corrections. Distinctly, this would come to play around mid-2025, the nearing due date of the company’s debt.
The flexibility of this situation revolves around the fluctuating value of bitcoin. Higher bitcoin prices offer a robust balance sheet for MicroStrategy, subsequently enhancing its share price and easing its debt repayment, all without necessitating the liquidation of its cryptocurrency holdings.
By contrast, the alarm truly rings if bitcoin tumbles and reaches absolute depressed pricing. In such a scenario, if MicroStrategy’s cryptocurrency holding value fails to suffice for its debt coverage and specific covenants post June 2025, the corporate structure might find itself on shaky grounds due to ‘spring forward’ clauses. Intriguingly, the 2028 due debt has liquidity covenants that could potentially springboard this debt to an early 2025/26.
With bitcoin’s notorious volatility in mind, it’s recognized that using debt as a strategy is invariably fraught and unpredictable. Consequently, sudden forced liquidations can never be entirely precluded, as pointed out by analysts led by Gautam Chhugani.
The landscape becomes clearer as we consider the quantitative aspects. MicroStrategy currently cradles about 152,000 bitcoin, which sums to a total cost basis of $4.5 billion and an average price hovering around $29,600. These figures mean that MicroStrategy’s cryptocurrency assets form roughly 0.78% of the total bitcoin in supply and represent about 20% of daily average BTC trading volume.
Further striking is that the market value of bitcoin assets makes up an impressive 95% of the market capitalization of MicroStrategy. Despite the debt accrued to afford the BTC, this market value equates to nearly half – about 49% – of the market capitalization of the company.
A concluding sentiment, expressed by investment bank Berenberg, rings resonantly true: MicroStrategy’s prospects for refinancing its debt maturities would be greatly enhanced if both its share price and the value of its bitcoin holdings were to surmount meaningful increases in the foreseeable future.
Source: Coindesk
