As the bitcoin market faced turmoil surrounding the possible bankruptcy of Genesis Trading and Digital Currency Group (DCG), rumors continued to surface that Michael Saylor and MicroStrategy’s bet on bitcoin could be in jeopardy if the price continued to fall.
This elephant in the room was investigated by Will Clemente of Reflexivity Research and Sam Martin of Blockworks Research. In their report, they address questions about 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 of any listed company at 130,000 BTC. The company has even taken out new loans in the past to increase its bitcoin holdings.
Specifically, MicroStrategy borrowed $2.37 billion to buy bitcoin at an average price of around $30,000 per BTC. Sailor’s debt profile can be found in the table below.
MicroStrategy and Saylor’s bet on borrowed bitcoins under threat?
Convertible bonds incur minimal interest costs for MicroStrategy, according to a research report, because the bonds were issued at a very favorable MSTR conversion rate.
In addition, the conversion to shares cannot occur until June 15, 2025 and August 15, 2026 unless there is a “fundamental change” in the company.
According to Reflexivity Research, this happens in the event of delisting from the NASDAQ or NYSE, a merger or acquisition by MicroStrategy, or a change in the company’s controlling interest.
Since Michael Saylor owns 67.7% of the voting rights, the latter scenario is very unlikely, so convertibles do not pose a significant risk.
On the other hand, according to the report, 2028 senior secured bonds are bad for several reasons. They include a high fixed interest rate, tie up 11.5% of BTC assets, and could cause problems if a maturity date is triggered.
“However, this does not pose an immediate threat to MicroStrategy,” Blockworks Research said.
For a $205 million Silvergate secured loan in 2025 with approximately 85,000 liquid BTC, Sailor’s liquidation price for this loan is reached at a Bitcoin spot price of $3,561. Thus, it also does not pose an immediate danger. The study of reflexivity states:
While the aforementioned risks to MicroStrategy and its BTC reserve are relatively far from becoming a major issue, more concern is 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 report for the 10th quarter, the company itself warns that it could suffer operating losses going forward. At the same time, Saylor’s company has almost $67 million in liquid assets, which will act as a buffer over the next 6-12 months.
In addition, the company has about 85,000 liquid BTC on balance to top up the collateral if bitcoin falls below $13.5,000 and raises Silvergate’s loan-to-loan ratio above 50%.
“However, the software business needs to rise to avoid a forced BTC sale in 2024,” Blockworks Research concluded. However, for now, MicroStrategy’s bet on bitcoin should not worry investors.
As of press time, the BTC price has again deviated from the main resistance at $16,600.