Strategy (formerly MicroStrategy) is the largest Bitcoin investor among publicly traded companies. Recently, it faced a more than 55% drop in its stock price. This sharp decline has led members of the crypto community to speculate on whether Strategy might be forced to sell its Bitcoin holdings to combat the crisis.
Strategy owns 499,096 BTC worth $44.3 billion. Selling off its cryptocurrency could crash an already weak market. We investigate whether Strategy might betray its ideals and start offloading its Bitcoin.
MicroStrategy’s Bitcoin Strategy
MicroStrategy’s business model is based on using Bitcoin as its primary asset. The company has been acquiring cryptocurrency for several years, with an average purchase price of around $66,350 per BTC. It is important to understand what might happen if Bitcoin drops significantly below this level.
Despite several bear markets, including Bitcoin’s 2022 crash from $70,000 to $15,000, the company has not abandoned its strategy. This approach inspires confidence but does not guarantee that MicroStrategy will continue following the same path in the future.
A key element of this model is the ability to raise capital by issuing zero-interest convertible notes, which are then used to buy even more Bitcoin. Currently, the company’s debt stands at about $8.2 billion, while its Bitcoin holdings are valued at $44.3 billion, giving Strategy a leverage ratio of 19%.
The Possibility of Forced Liquidation
The structure of MicroStrategy’s debt is a crucial factor in determining the likelihood of forced liquidation. Most of the company’s debt is tied to convertible notes, with conversion prices below the current stock price, and most of these obligations are due only in 2028.
Theoretically, forced liquidation could only occur in the event of a “fundamental change” within the company. According to its loan agreements, such a change could include significant adjustments to MicroStrategy’s operations or structure. This would require shareholder approval or corporate bankruptcy, which would be extremely difficult to execute.
To liquidate or dissolve the company, a shareholder vote would be necessary. Given that the organization’s founder and active crypto advocate, Michael Saylor, controls 46.8% of the voting power, such a vote is unlikely to proceed without his approval. Even if Bitcoin continues to decline, Saylor has stated that the company will continue buying coins rather than liquidating its reserves.
Plans to Raise Capital
Although forced liquidation is unlikely, MicroStrategy’s biggest challenge could be its ability to continue raising capital, which is a vital part of its strategy. The company’s business model relies on issuing debt and selling shares to buy BTC, which in turn helps drive up cryptocurrency prices. If Bitcoin continues to fall, investors may be unwilling to fund new issuances, weakening the company’s ability to execute its strategy.
Conclusion
While forced liquidation is theoretically possible, it seems unlikely due to the company’s debt structure, shareholder control, and long-term Bitcoin accumulation strategy. However, a continued decline in Bitcoin’s price could trigger a crisis that would make it more difficult for MicroStrategy to raise capital.