As the Bitcoin market faced turmoil surrounding the possible bankruptcy of Genesis Trading and Digital Currency Group (DCG), chatter kept surfacing that Michael Saylor’s and MicroStrategy’s Bitcoin bet could be in jeopardy if the price continues to fall.
This elephant in the room has been investigated by Will Clemente of Reflexivity Research and Sam Martin of Blockworks Research. In their report, they examine the questions of whether MicroStrategy has a Bitcoin liquidation price, how high it is, 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 even took out new loans to grow its Bitcoin holdings.
Specifically, MicroStrategy borrowed $2.37 billion to buy its Bitcoin at an average price of about $30,000 per BTC. The debt profile of Saylor’s company can be found in the table below.
MicroStrategy’s debt profile for its Bitcoin bet. Source: Twitter
Is MicroStrategy And Saylor’s Levered Bitcoin Bet At Risk?
The convertible notes incur minimal interest costs for MicroStrategy, according to the research report, because the notes were issued at very favorable MSTR conversion rates.
In addition, conversion to stock cannot occur until June 15, 2025, and August 15, 2026, at the earliest, unless the company undergoes a “fundamental change.”
According to Reflexivity Research, 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.
Since Michael Saylor owns 67.7% of the voting rights, the latter scenario is very unlikely, making the convertible notes not a major risk.
The 2028 senior secured notes, on the other hand, are bad for several reasons, according to the report. They include a high fixed interest rate, tie up 11.5% of BTC holdings, and could cause problems if the maturity date is triggered.
“However, it poses no immediate threat to MicroStrategy,” Blockworks Research said.
For Silvergate’s $205 million secured loan in 2025, with about 85,000 liquid BTC, Saylor’s liquidation price for that loan is reached at a Bitcoin spot price of $3,561. Thus, this also does not pose an immediate risk. Reflexivity Research states:
While the aforementioned risks to MicroStrategy and its BTC reserve are relatively far out from becoming immediate concerns, the bigger worry lies in the company’s ability to service the interest on its outstanding debt.
MicroStrategy’s operating results from its software business show 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 could suffer operating losses in future periods. At the same time, Saylor’s company holds nearly $67 million in liquid assets, which will serve as a buffer over the next 6-12 months.
In addition, the company has about 85,000 liquid BTC on its balance sheet to top up collateral should Bitcoin fall below $13.5,000 and push the loan-to-value ratio of the Silvergate loan above 50%.
“However, the software business needs to pick up in order to avoid forced BTC selling in 2024,” Blockworks Research concluded. For now, however, MicroStrategy’s Bitcoin bet is nothing investors should be worrying about.
At press time, the BTC price was rejected once again from the major resistance at $16.600.
Bitcoin price in the 15-min-chart. Source: TradingView