As the Bitcoin market has faced turmoil surrounding the possible bankruptcy of Genesis Trading and Digital Currency Group (DCG), there has been constant talk that Michael Saylor and MicroStrategy’s bet on Bitcoin could be in jeopardy if the price continues to fall.
This elephant in the room was researched by Will Clemente of Reflexivity Research and Sam Martin of Blockworks Research. In their report, they address 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 publicly traded companies, amounting to 130,000 BTC. In the past, the company has even taken out new loans to increase its bitcoin holdings.
Specifically, MicroStrategy borrowed $2.37 billion to buy its Bitcoin at an average price of around $30,000 per BTC. The debt profile of Saylor’s company can be found in the table below.
Is MicroStrategy and Saylor’s Bitcoin Bet at Risk?
The convertible notes result in minimal interest costs for MicroStrategy, according to the research report, because the notes are issued at very favorable MSTR exchange rates.
In addition, the conversion to shares 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 the company’s majority ownership.
Since Michael Saylor owns 67.7% of the voting rights, the latter scenario is very unlikely, making the convertible notes not a major risk.
On the other hand, senior secured bonds due 2028 are bad for several reasons, according to the report. These 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 does not pose an 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 was reached at a bitcoin spot price of $3,561. Therefore, it is also not an immediate risk. The study of reflexivity states:
While the aforementioned risks to MicroStrategy and its BTC reserve are relatively far from becoming an immediate concern, the bigger concern 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 warned that it could suffer operating losses in future periods. Meanwhile, Saylor’s company holds nearly $67 million in liquid assets that 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 if Bitcoin falls below $13.5,000 and pushes Silvergate’s loan-to-value ratio above 50%.
“However, the software business needs to pick up steam to avoid a forced BTC selloff in 2024,” Blockworks Research concludes. For now, however, MicroStrategy’s bet on Bitcoin is nothing investors should worry about.
At press time, the price of BTC was rejected once again by the major resistance at $16,600.