MicroStrategy (MSTR) Stock Takes a Hit Amid Bitcoin Drop
MicroStrategy, now known as Strategy, has seen a significant decline in its stock price (MSTR) following a sharp plunge in Bitcoin's (BTC) value. In the midst of speculation surrounding the potential liquidation of Strategy's Bitcoin holdings, The Kobeissi Letter weighed in, indicating that although unlikely, the possibility is not entirely ruled out.
MSTR's value plummeted by 11% in the past 24 hours as Bitcoin dropped over 3%, closing the stock at $250, marking a 55% decrease from its all-time high in November 2024, as reported by Yahoo Finance.
According to analysis by The Kobeissi Letter, the idea of a forced liquidation of Strategy's Bitcoin assets is not entirely impossible but highly improbable given the company's strategy of raising capital rather than selling Bitcoin to fund their crypto purchases. Through various financial maneuvers such as issuing 0% convertible notes and selling shares at a premium, Strategy has been able to sustain its Bitcoin acquisitions without resorting to liquidating assets, even in turbulent market conditions.
As per current data, Strategy holds approximately $43.4 billion in Bitcoin against $8.2 billion in debt, resulting in a leverage ratio of around 19%. The majority of their debt comprises convertible notes with conversion prices below the current share value, offering a comfortable cushion for the company until maturities extend beyond 2028.
While the ability to raise fresh capital faces challenges if liabilities surpass assets significantly, there is a potential strain on the company's financial flexibility, though this does not automatically lead to forced liquidation. Liquidation remains a hypothetical situation pending a "fundamental change," requiring either a stockholder vote or bankruptcy, as highlighted by The Kobeissi Letter.
However, this outcome is unlikely considering Michael Saylor's substantial 46.8% voting power, shielding Strategy from such actions without his consent. Saylor, a staunch advocate for Bitcoin, recently increased the firm's holdings by acquiring 20,356 BTC, demonstrating his confidence in the asset's long-term prospects.
Looking ahead, Strategy's main concern revolves around future prospects, particularly when the company's convertible bonds mature post-2027. A significant drop in Bitcoin's price coupled with the challenge of refinancing or repaying debt in case of a more than 50% price reduction may strain Strategy's resources and investor trust.
Despite short-term liquidation prospects seeming dim, the long-term risks associated with Bitcoin's volatility and debt obligations pose ongoing uncertainties, underlining the importance of maintaining investor support amid market fluctuations.